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'''Quantitative Easing''' is the controversial technique used by a nation's central bank to shift a portion its portfolio of [[asset]]s from overnight and short term [[loans]] to holding more long-term bonds.  Ordinarily, a central bank increases the money supply by lowering short-term interest rates.  When the bank lowers the rate to zero percent interest, a different step must be taken to further increase the short term money supply.

'''Quantitative Easing''' is the controversial technique used by a nation's central bank to shift a portion its portfolio of [[asset]]s from overnight and short term [[loans]] to holding more long-term bonds.  Ordinarily, a central bank increases the money supply by lowering short-term interest rates.  When the bank lowers the rate to zero percent interest, a different step must be taken to further increase the short term money supply.

It is an economic [[monetary policy]] in which the total [[money supply]] is increased by the central bank buying long-term bonds.  In the United States, the [[Federal Reserve]] buys Treasury bonds. The goal is to encourage private [[bank]] to lend more and help reduce the effects of an economic recession and avoid deflation. Quantitative easing was first used by [[Japan]] in 2000 to fight a [[deflation|deflationary]] economy. A side-effect of quantitative easing is that the currency becomes devalued versus other [[currency|currencies]], which affects international trade. For this reason, the central banks of economically developed countries try to use quantitative easing in cooperation with other nations.

It is an economic [[monetary policy]] in which the total [[money supply]] is increased by the central bank buying long-term bonds.  In the United States, the [[Federal Reserve]] buys Treasury bonds. The goal is to encourage private [[bank]] to lend more and help reduce the effects of an economic recession and avoid deflation. Quantitative easing was first used by [[Japan]] in 2000 to fight a [[deflation]]ary economy. A side-effect of quantitative easing is that the currency becomes devalued versus other [[currency|currencies]], which affects international trade. For this reason, the central banks of economically developed countries try to use quantitative easing in cooperation with other nations.

This policy of creating additional money to give to banks so that they lend more is highly questionable. The banks were largely responsible for the [[Great Recession]] and the increased money for banks have failed to produce the desired effect even after the Central Bank's $1.7 trillion purchase. The short term economic gains are minimal and in the long term, the central bank will lose money if the market value of the bonds drop before the bank can sell them.  If a quantitative easing policy is in place too long, it can eventually lead to higher prices and inflation or even hyper-inflation.<ref>[http://blogs.forbes.com/charleskadlec/2011/02/22/higher-inflation-is-on-the-way/ Higher [[Inflation]] Is On The Way, [[Forbes]].com, February 22, 2011]</ref>

This policy of creating additional money to give to banks so that they lend more is highly questionable. The banks were largely responsible for the [[Great Recession]] and the increased money for banks have failed to produce the desired effect even after the Central Bank's $1.7 trillion purchase. The short term economic gains are minimal and in the long term, the central bank will lose money if the market value of the bonds drop before the bank can sell them.  If a quantitative easing policy is in place too long, it can eventually lead to higher prices and inflation or even hyper-inflation.<ref>[http://blogs.forbes.com/charleskadlec/2011/02/22/higher-inflation-is-on-the-way/ Higher [[Inflation]] Is On The Way, [[Forbes]].com, February 22, 2011]</ref>

[[Category:Economics]]

[[Category:Economics]]

[[Category:finance]]

[[Category:Finance]]