The End of Quantitative Easing

The Federal Reserve (The Fed) has finally ended ‘quantitative easing’ (QE), a policy that forced trillions of US dollars into the financial system. The jury will be out for some time on whether or not the QE strategy worked, and what will ultimately be the consequences. For now, the Federal Reserve’s main policy committee has suggested that there has been a substantial improvement in the labor market, and that there is underlying strength in the economy on a broader scale.

The Federal Reserve (The Fed) has finally ended ‘quantitative easing’ (QE), a policy that forced trillions of US dollars into the financial system. The jury will be out for some time on whether or not the QE strategy worked, and what will ultimately be the consequences. For now, the Federal Reserve’s main policy committee has suggested that there has been a substantial improvement in the labor market, and that there is underlying strength in the economy on a broader scale.

The Fed had to what it could do to make up for President Obama’s disastrous economic and political policies. If The Fed did not institute QE, America would be in a depression right now and would have to correct its ways.

What is Quantitative Easing?

Instead of reducing the cost of money, or cutting interest rates, QE pushes the quantity of money upwards by going into the financial markets and purchasing assets with new money. The aim is to push down interest rates for households and businesses, even lower than would be possible using the conventional central bank interest rate.

Critics have suggested that quantitative easing could lead to a brand new financial crisis for America in the form of raging inflation and punish responsible savers. Estimating the impact of QE is not a simple matter. The question is not whether the US economy has become better or worse, but whether it is better or worse than it would have been without QE.

The former Federal Reserve Chairman, Ben Bernanke, said that there had been substantial evidence that the asset purchases by the Federal Reserve have lowered long-term yields and eased the worsening financial conditions in the US. He also stated that the first two batches of QE led to increased economic activity of approximately 3%, and increased private sector jobs by two million.

Other financial analysts and business leaders believe Bernanke helped President Obama, construed as collusion. These same financial insiders and business executives believe that if America balanced its budget, lowered taxes, simplified the tax code, and decreased job killing regulations, QE would have not have been needed.

Minor Positives

The Federal Reserve official, John Williams, said that they were finally beginning to see signs of life within the housing market, and attractive auto-financing rates improved sales. Furthermore, low corporate bond rates have encouraged new businesses to start up and hire more workers.

The Other Side of the QE

With all of this in mind, however, it is important to recognize that quantitative easing has not given the United States a particularly huge recovery. It has actually been much weaker than many post-recession rebounds, attributable to the President’s weak economic policies and ideologies. The recurring theme with many critics is that QE creates a sense of surging inflation danger. The policy included creating new money, totally artificial, and there is a long history in any economy that argues that a rapid increase in money supply leads to higher rates of inflation.

The Recession Continued

Creating reserves can cause banks to lend more cash to the public, which does create new money in their accounts. However, this time, the reserves have not translated to anything as large as the increase of money within the hands of the public, and inflation remained subdued. What really happened, though, is the recession for many people never ended while the Fed did everything it could to explain to the public that President Obama’s policies would not promote a strong economy.