Body & Soul8 mins ago
Quantitative Easing
13 Answers
Can anybody explain this in very simple language that an idiot like me will understand?
Thanks!
Thanks!
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I thought that this was an amusing way to explain it.
A rich american goes into a hote in a small russian villagel, puts 10 dollars behind the counter and asks to inspect the rooms. The chambermaid takes him round the hotel. The hotel Manager uns to the butcher gives him the 10 dollars and clears his meat bill. The butcher fruns to the farmer and gives him the 10 dollars to clear his bill for animals to sell. The farmer runs to the feed merchant and ives him the 10 dollars to clear his bill. the feed merchant runs to the local prostitute and pays off his bill for her services with the 10 dollars. The prostitute runs to the hotel and gives them the 10 dollars to pay for the room she hired for her clients. The American comes back and decides to leave the hotel, his 10 dollars is returned to him and he leaves the village debt free.
A rich american goes into a hote in a small russian villagel, puts 10 dollars behind the counter and asks to inspect the rooms. The chambermaid takes him round the hotel. The hotel Manager uns to the butcher gives him the 10 dollars and clears his meat bill. The butcher fruns to the farmer and gives him the 10 dollars to clear his bill for animals to sell. The farmer runs to the feed merchant and ives him the 10 dollars to clear his bill. the feed merchant runs to the local prostitute and pays off his bill for her services with the 10 dollars. The prostitute runs to the hotel and gives them the 10 dollars to pay for the room she hired for her clients. The American comes back and decides to leave the hotel, his 10 dollars is returned to him and he leaves the village debt free.
O_G's post seems to belong on this thread:
http://www.theanswerb.../Question1064127.html
(where I've pointed out that the Bank of England is independent of political control).
http://www.theanswerb.../Question1064127.html
(where I've pointed out that the Bank of England is independent of political control).
Scotman:
Bonds are normally sold for a fixed period. When that period ends the purchaser can choose whether to 'cash in' their bonds or to renew their purchase for a further fixed-time period.
As explained in Factor30's link, the Bank of England injects cash into the economy by buying bonds (and gilts) from banks. At the end of their fixed terms, the B of E can either keep the extra money in the system (by renewing their bond purchases) or withdraw it (by 'cashing in' those bonds).
Chris
Bonds are normally sold for a fixed period. When that period ends the purchaser can choose whether to 'cash in' their bonds or to renew their purchase for a further fixed-time period.
As explained in Factor30's link, the Bank of England injects cash into the economy by buying bonds (and gilts) from banks. At the end of their fixed terms, the B of E can either keep the extra money in the system (by renewing their bond purchases) or withdraw it (by 'cashing in' those bonds).
Chris
The explanation given by ubasses is thought provoking and amusing but it is just a description of the way economies work via credit rather than an explanation/example of QE.
In ubasses example it looks to me as if there was no net debt to start with. For example, the hotel manager owed the butcher £10 but the hotel manager was owed £10 by the prostitute. Everyone owed £10 and was owed £10 so had no net debt.
In ubasses example it looks to me as if there was no net debt to start with. For example, the hotel manager owed the butcher £10 but the hotel manager was owed £10 by the prostitute. Everyone owed £10 and was owed £10 so had no net debt.
What is quantitative easing?
QE is an emergency tool of monetary policy that the Bank of England can use to boost the UK economy. Cutting interest rates is the principal way the Bank can fire up economic activity but rates have been cut as low as they can go.
How does it work?
The Bank generates fresh amounts of electronic money to encourage lending to businesses. Specifically, the Bank buys assets like Government and corporate bonds with its new cash. The companies selling those assets - usually commercial banks or other financial businesses such as insurance companies - will then have new money in their accounts, which in turn should feed into the wider economy.
So it's not really 'printing money'?
Not in the literal sense, no. And not in the sense that money was printed in Weimar Germany or more recently in Zimbabwe. That money was used to fund massive government deficits and led directly to hyperinflation. This is outlawed under the Maastricht Treaty.
Read more: http://www.thisismone...rk.html#ixzz1aMGCPXWj
QE is an emergency tool of monetary policy that the Bank of England can use to boost the UK economy. Cutting interest rates is the principal way the Bank can fire up economic activity but rates have been cut as low as they can go.
How does it work?
The Bank generates fresh amounts of electronic money to encourage lending to businesses. Specifically, the Bank buys assets like Government and corporate bonds with its new cash. The companies selling those assets - usually commercial banks or other financial businesses such as insurance companies - will then have new money in their accounts, which in turn should feed into the wider economy.
So it's not really 'printing money'?
Not in the literal sense, no. And not in the sense that money was printed in Weimar Germany or more recently in Zimbabwe. That money was used to fund massive government deficits and led directly to hyperinflation. This is outlawed under the Maastricht Treaty.
Read more: http://www.thisismone...rk.html#ixzz1aMGCPXWj
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