Quantitative Easing Program - QE
"Quantitative easing"aka QEaka quantitative easing (easing) - articles of economic publications, traders' forums and communities are full of this term. When it is mentioned, it immediately brings to mind the chapter FED Ben Bernanke is a bearded man with sad eyes and a smart eye. But if you ask anyone what "quantitative easing" is and what it does, only one in ten people will give a competent answer. This is not surprising, since even economists and financial experts disagree on its meaning, application and effectiveness. So what and with what is quantitative easing?
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"Quantitative easing": the physics of the process
The term "Quantitative easing" was introduced during the financial crisis of 2007-2008. In its essence, "quantitative easing" is a tool from the set of unconventional methods of monetary policy. Under the QE program, the Federal Reserve conducts buyback operation from banks of debt belonging to mortgage agencies, as well as government treasury bonds, filling the financial system with a certain amount of money. That is, the Fed pours more and more money into the economy, thereby influencing bond yields, lowering interest rates, as a result of which Loans for companies are getting cheaper.
The physics of the process is simple. The more reserves a bank has, the greater the number and volume of loans issued. The more money a company can borrow, the more it will invest in the development of its structure. The more a company invests in its development, the more employees it will hire. In essence, "quantitative easing" is the usual through the banal "printing of money" regulator spurs economic growth.
Such a process became possible after the Bretton Woods system collapsed in the 1970s. The "golden brake" that had been limited the amount of money supply by the size of the banks' gold reserves. As a result, the Fed has been literally flooding the world's financial markets with a growing mass of dollars for 40 years.
The advantage of the system - simplicity, the disadvantage - it does not work
As one of the canons of Economic Theory, some two hundred years old, states, the primary an economic management tool for monetary authorities is the interest rate. By changing its size, the regulator makes money cheap or expensive. But when the money supply reaches trillions of units of money, interest rates fall to below 1% per year.
As any trader knows, in the United States interest rateThe Bank of Japan's interest rate, since the last crisis, has been in the 0-0.25% range. The Bank of Japan's interest rate has been at zero for about ten years. Money has become a "sea of plenty," but it no longer serves the function of accelerating production and satisfying consumer demand. The classical money market, described in canonical textbooks, simply ceased to exist when the interest rate instrument went out of business.
As a matter of fact, the operation of the money machine in "weekend mode" has always been regarded by the monetary authorities as Gross abuse of power and almost criminal. The oversupply of money causes inflationary increases in prices, disrupts the economic equilibrium, levels the stimulation of productive labor and increases social and property divisions.
Where do billions of dollars go?
One would think, what's the big deal? The Fed prints for itself Dollars to stimulate the economy, so let it print itself. But no, there are pitfalls here, too! It turns out that the printed money is not evenly distributed by the U.S. regulator. First of all, the money goes to the largest banks, to holders of huge portfolios of mortgage securities. The banks, accordingly, do not be fools, exchange this, frankly, wastepaper for real money.
And then comes the most interesting part. According to the official version The money is further channeled into the economy, increasing the demand of the population, turning it into investment and participating in the creation of new jobs. However, a number of economists and experts agree that in fact the scheme looks somewhat different. Banks use the funds received from the Fed to maximize profits, i.e. direct them into the realm of speculation on the commodity and financial markets. Only paltry crumbs reach the real economy. The jobs created are not even enough to absorb the increase in supply in the labor market. And if the fiscal stimulus program can't solve the employment problem, then what's the point?
That is, if you go into it. "quantitative easing" is negative for the average American in the form of inflationary increases in the prices of goods and services. The only beneficiaries are "Donald Trump and his cohorts....
By the way, it is worth noting that The specific recipients of money from the Fed are unknown. During the last economic crisis, Michael Bloomberg, founder and owner of Bloomberg News Agency and also the 108th mayor of New York City, asked the Federal Reserve for a list of banks that had received money from the Fed. The regulator turned Bloomberg down. The Federal Reserve Board said that the law on the freedom of information in the United States was limited to government agencies, which did not include the Federal Reserve. Moreover, the Federal Reserve also refused to respond to the Congress' request for billions of dollars.
To summarize, it should be noted that quantitative easing is not a universal way to solve all economic problems. Pumping the economy with money threatens uncontrolled inflation, depreciation of the dollar, which is reflected in the cost of commodity exports and imports. In fact, the QE program is just a half-measure that distances the authorities from the real solution to economic problems.