In our world, crises occur everywhere. One of the most significant is economic. When it occurs in a small country, it is hardly noticeable. But the economic crisis in the USA, EU or China can affect the whole planet. And this is not surprising - because each of this economy owns 3/5 of the total gross domestic product of the planet. But if there are negative trends, then you need to somehow deal with them. In the US, quantitative easing is used for this. The Fed is responsible for the announcement and implementation of this approach. Let’s find out what this program includes, how it is implemented and what the possible consequences are.
What is a quantitative easing program?
This is the name of the
monetary policy, which is used by central banks to increase the money supply due to the growth of reserves of commercial financial institutions. There are three types and two types of programs. Quantitative mitigation in these cases varies according to the approach and subjects of influence. Therefore, there is a significant difference in the implementation of policies. If we talk about the types of programs, then they are active and passive. About the species, we can say that there are three of them, which are designated as QE 1, QE 2 and QE 3. Let's talk about them in more detail.
Passive type
This is the name of monetary policy in which, in order to deal with problems, central banks launch various programs aimed at increasing the liquidity of the financial system. What is the meaning of this type? In this case, financial institutions have the right to apply to the central bank with requests to deposit funds into their account in exchange for various securities, which in this case act as collateral. Although this is all initiated by the central institution, exclusively various private organizations are used to participate in them.
Active type
This is the name of the policy under which urgent payment is made for purchased government and / or risky
securities. In this case, a mechanism is used to simply add money to the account. Shopping of this kind leads to an increase in the size of the balance held by the central bank. The number of reserves and money supply are also growing. As an added bonus, central banks also reserve the right to clearly control the process of changing the size of the monetary mass. The only restriction that applies to the implementation of programs of this type is the desire, ability and ability of the government to prevent potential losses.
The first type of quantitative easing
To denote it, the abbreviation QE 1 is used. The purpose of these actions is to save large corporations, banks and private enterprises. For this, a ransom from debts that depreciated was used. During the operation of this program,
the US Federal Reserve System purchased mortgage and other bonds for a fantastic amount for us - $ 1.7 trillion. It began to operate in November 2008 during the outbreak of the global economic crisis. It ended - in 2009. As practical results showed, it had a "therapeutic" effect, and soon after its termination, its result was minimized. Therefore, the program of quantitative easing of the Fed was continued in the future. At the same time, certain changes were introduced.
The second type of quantitative easing
The designation QE 2 is used for it. Its launch was announced on November 2, 2010. It was assumed that the main focus would be on treasury bonds. They were bought for 600 billion dollars - this process lasted 8 months. The
federal reserve system also reinvested part of the bonds from the first type of program. The amount in this case amounted to 300 billion US dollars. This program ended in June 2011. The main goal of pursuing this monetary policy was to achieve a result in which the economy will lose sensitivity to cheap loans and increased liquidity.
The third type of quantitative easing
This program was launched on September 13, 2012 and received the designation QE 3. Monthly Treasury and mortgage bonds were redeemed - in the amount of 45 and 40 billion US dollars. It was originally planned that this program will operate for several quarters. But it was declared closed only on October 29, 2014. The position of the US economy was used as the main criterion .
What is a quantitative easing program and what were the prerequisites for the current state of affairs?
The US Fed came up with a good name. But what is hidden behind it? Where did the money come from to buy the bonds? You can ask many more questions that need to be answered. In fact, a process called quantitative easing is known to the general public as the
issue of money. But this is already considered by many experts as a gross abuse of vested powers. So, when circulation channels are overwhelmed with a significant amount of money supply, this leads to inflationary price increases. There is a violation of
macroeconomic equilibrium, the incentives to increase labor productivity are destroyed. Well, as an addition, we can talk about the increasing social and property
polarization of society. This can be read in any textbook on economics. Students who study the economic aspects of social life should memorize this as a multiplication table. Moreover, the peculiarity is that this program is under state control.
So, in most countries of the world, it is the government that decides when to turn on the machine and increase the money supply that is in circulation. In the United States, in December 1913 (that is, over 100 years ago), control of the machine was transferred to the largest private bankers. Their unification is called the federal reserve system. It was believed that private traders would be better able to deal with it. And now the quantitative easing program in the United States is managed by them, while only consultations are held with the government. Initially, bankers did not abuse the opportunities. But during the years of the great depression, a law was passed on the forced confiscation of valuable metals, since all the money had to be secured. But thanks to the elimination of the golden brake along with the Bretton Woods system in the 70s of the last century, the situation became deplorable.
Current state of affairs
Since then, the amount of money (although not at such a fast pace as in the programs under consideration) has increased. Remember what was written earlier. One of the goals of the second program was to make the economy such that it was insensitive to an increase in the money supply. And it quite happened. Quantitative easing in the United States has its results, because, despite a significant increase in the money supply, there was no tangible result for the whole country. It should be borne in mind that it is recommended that the economic sciences primarily use the interest rate tool to make money cheap or expensive. But due to the significant monetary mass, it keeps at the level of 0-0.25%. Thus, money is a sea, but they do not work to develop production and satisfy people's need for something. That is, the interest rate tool is no longer fulfilling its task. The effectiveness of the money market is falling, and an administrative-team approach is being formed regarding the production and distribution of banknotes. In this case, all this is possible due to the fact that a “quantitative easing” policy is being pursued.
Results of Interventions
It is not necessary to talk about obtaining a long-term positive effect. A quantitative easing policy provides results for a period of 3-6 months. Particular attention is paid to the positive short-term effects. So, as such, they mention an increase in the solvency of the population, a weakening currency (which will entail benefits for exporters and the depreciation of debts) and a number of other advantages. But it should be borne in mind that the US quantitative easing policy will have only short-term macroeconomic effects. In addition, this is accompanied by a reduction in budget expenditures and an increase in taxes (for example, the tax credits introduced in 2008 during the crisis expired and were not extended). Also, when talking about quantitative easing and mentioning that this is a winning policy, it must be remembered that there are losers in the realities of the modern world. Therefore, other countries make certain decisions so that the revival in the United States does not occur at their expense. And in this case, quantitative easing loses its effectiveness.
Thus, it is not necessary to say that everything is positive and the currency is moving towards a brighter future. In addition, the use of this tool is possible as long as there are people who want to buy money. And what will happen if they end? There will be no one else who can or wants to acquire them? In this case, it will be possible to talk about at least significant inflation - a crisis that our world has not yet seen.