PSA: Quantitative Easing
Posted: Mon Mar 26, 2012 7:36 pm
if you have followed the recnt economic developments in the united states you have heard the term , QE many peopel wonder what does the term QE mean and how does it affect me?. in this post I will post clips and explanations for Quantitative Easing. the simplest explanation for Quantitative easing is Mass money printing in the hopes of increasing the money supply and create what conservatives like to call a trickle down affect, the difference is quantitative easing is not meant of the general public rather it is mean for specifically multi-billion dollar Corporation. The Aim of Quantitative easing is very simple to get bank to start lending and thus increase economic activity and thus create a form of economic stimulus, QE is a three step process.
step 1: Buying risk, the government essentially buys anything that stops banks from lending , these are overpriced and undervalued properties, failed trade purchase (worthless stocks) and other properties that the banks own , that are pretty much junk (have absolutely no , or little value), banks argue that these junk hinder them from loaning because so much of their portfolio is made up of this financial sewage that they cant risk loan dodging.
Step 2: Loans to the banks Via the Fed: the Fed loans the banks trillions at zero percent interest (0.5% -0.9%). This is also to decrease the banks Loan risk (banks can loan at 5% interest and make billions).
Step 3: Increasing outside venture coasts and forcing the banks to loan, most banks usually buy government bonds at the slightest profit, 10 year government bonds create about 10-14% interest, and so when banks get loan from the fed the first thing they do is buy these bonds for a few reasons (the loans are guaranteed by the US treasury, their money is protected, there is very little risk involved). The Fed realized this so they buy large guaranties of government bonds, this greatly decreases the interest of government bonds from 10-14% to anything between 1-5%. this puts the banks in a compromising position because at 5% interest after 10 years its make very little financial sense, when they know most loans can be redeemed at 10% interest and the timeline of the loan is much shorter (5-7 years ).
recently Quantitative increased use of this method of motivation for the banks has inflated the money supplies and decreased the value of the dollar. money worry that this could lead to the US, losing its global currency title and the petro-dollar collapsing in itself. Below is a video that further explains the concepts stated above.
I hope you found this helpful.
step 1: Buying risk, the government essentially buys anything that stops banks from lending , these are overpriced and undervalued properties, failed trade purchase (worthless stocks) and other properties that the banks own , that are pretty much junk (have absolutely no , or little value), banks argue that these junk hinder them from loaning because so much of their portfolio is made up of this financial sewage that they cant risk loan dodging.
Step 2: Loans to the banks Via the Fed: the Fed loans the banks trillions at zero percent interest (0.5% -0.9%). This is also to decrease the banks Loan risk (banks can loan at 5% interest and make billions).
Step 3: Increasing outside venture coasts and forcing the banks to loan, most banks usually buy government bonds at the slightest profit, 10 year government bonds create about 10-14% interest, and so when banks get loan from the fed the first thing they do is buy these bonds for a few reasons (the loans are guaranteed by the US treasury, their money is protected, there is very little risk involved). The Fed realized this so they buy large guaranties of government bonds, this greatly decreases the interest of government bonds from 10-14% to anything between 1-5%. this puts the banks in a compromising position because at 5% interest after 10 years its make very little financial sense, when they know most loans can be redeemed at 10% interest and the timeline of the loan is much shorter (5-7 years ).
recently Quantitative increased use of this method of motivation for the banks has inflated the money supplies and decreased the value of the dollar. money worry that this could lead to the US, losing its global currency title and the petro-dollar collapsing in itself. Below is a video that further explains the concepts stated above.
I hope you found this helpful.