M
morganist
I think you have it confused. The exchange of a liquid asset for a less liquid asset is qualitative easing. QE is literally when the central bank creates some numbers on a computer then buys Treasuries or in some cases other assets with it.
That helps clear things up. So what you are saying than, if I'm correct, is that "quantitative" easing necessarily involves creating new money.
While I was having this conversation with you I read the Wiki article on QE (what a great resource Wiki has become!) and you'll be pleased to know that Wiki agrees with you. Did you write the Wiki article?
So is this what we are discussing, maybe, lowering interest may increase the availability of money without increasing the total amount of money, where as quantitative easing increases the availability of money and the total amount?
I may be catching on, finally! (I am a slow learner sometimes). Now, I still don't know what you meant by "real term loss". Can you define that for me?
One more question for you: What is the effect on the money supply of the Fed, at a later date, selling the Treasuries it acquired under its QE operation?
And finally, one more question: What did Bernanke mean when during a Congressional hearing before the banking committee, while the Fed was in the midst of one of its QE operations, Bernanke was asked about (or was it accused of) "printing" and the money supply and he said flat out "We're not printing." Was he lying? Or is his definition of printing like mine, meaning directly monetizing debt by creating money for the Treasury to use in paying debt --i.e., as in a banana republic? Or is there more to this than meets the eye?
M
morganist
Quote from piezoe:
That helps clear things up. So what you are saying than, if I'm correct, is that "quantitative" easing necessarily involves creating new money.
Answer.
Yes that is basically it. There is lots of misunderstanding of what it is and what money creation is. Some people think fractional reserve money and rehypothecation are money creation they are not. What you are describing is qualitative easing. Quantitative Easing is when they create money on a computer and then buy poducts usually government debt. Things like rehypothecation and interest rate cuts don't create money they over price assets, give the illusion they are providing collateral or expand the duration or repayment (say they will pay money they use back in the future and then extend that date).
Question.
While I was having this conversation with you I read the Wiki article on QE (what a great resource Wiki has become!) and you'll be pleased to know that Wiki agrees with you. Did you write the Wiki article?
Answer.
No lots of people know what QE is so it could have been anyone. I don't know who did it. But it wasn't me.
Question.
So I am beginning to catch on. (I am a slow learner sometimes). Now, I still don't know what you meant by "real term loss". Can you define that for me?
Answer.
Real term describes the value when inflation has been accounted for. So if Quantitative Easing creates inflation and that in turn creates consequences for the economy, which I explained earlier, there is a loss in vlaue of assets which exceeds the new valuation inflation created for the asset.
Question.
Finally, one more question for you: What is the effect on the money supply of the Fed, at a later date, selling the Treasuries it acquired under its QE operation?
Answer.
This is a matter of debate but the general understanding is that when central banks Quantitatively Ease it creates inflation in the long term. I think for different reasons than they say but still that is what is expected. I think they would refer to it as money illusion.
Final Comment.
In the back of my book Euro Crisis I explain some of the concepts of money circulation and define things. I think it would be worth a read.
http://www.amazon.com/Aggregate-European-Currency-Weakness-ebook/dp/B007U9JJ0G
Thanks very much! Morgan.
This below especially was helpful!!.
"Real term describes the value when inflation has been accounted for. So if Quantitative Easing creates inflation and that in turn creates consequences for the economy, which I explained earlier, there is a loss in vlaue of assets which exceeds the new valuation inflation created for the asset."
Had you incorporated that into your article it would have made it a little easier to follow. (Maybe you should get me to review your articles before you send them off. )
Also, did you notice that while you were responding I slipped in a question re Bernanke's denying they were printing? And also, am I correct about that difference between lowering rates and QE that I edited in while you were responding?
This has been a very productive and informative exchange for me. I really appreciate it!
This below especially was helpful!!.
"Real term describes the value when inflation has been accounted for. So if Quantitative Easing creates inflation and that in turn creates consequences for the economy, which I explained earlier, there is a loss in vlaue of assets which exceeds the new valuation inflation created for the asset."
Had you incorporated that into your article it would have made it a little easier to follow. (Maybe you should get me to review your articles before you send them off.
)Also, did you notice that while you were responding I slipped in a question re Bernanke's denying they were printing? And also, am I correct about that difference between lowering rates and QE that I edited in while you were responding?
This has been a very productive and informative exchange for me. I really appreciate it!
M
morganist
I am not familiar with the statement he made. Perhaps you could provide it. From your description it could suggest two things. Either he was introducing funds in central bank reserves into the economy that had a long duration. Or he was talking about qualitative easing when risky debt is taken out of the economy and exchanged with safer debt from the central bank or the duration of the debt is changed to a shorter period in an effect to increase the velocity of money.
I saw that footage with him saying that. It puzzled me also. I think that his definition of printing is different than mine. What I believe that he meant was that although they are buying bonds.. the balances are sitting in reserve.. or resold but not quite out in the form of "extra money". .loans out in the public etc.. I don't agree with what he said though. But, I can see his point..
Good, clear article.
Wealth is permission-based. What you term "oppressive wealth" refers to people who don't like change. They deliberately block those trying to build wealth because they are afraid. "Competition is a sin" = "stamp out the competition before it gets to you"
Wealth is permission-based. What you term "oppressive wealth" refers to people who don't like change. They deliberately block those trying to build wealth because they are afraid. "Competition is a sin" = "stamp out the competition before it gets to you"