What is Quantitative Easing?
Quantitative easing , which literally means “quantitative easing ” is the exceptionally expansionary monetary policy in which central banks ” create money ” and buy government bonds or illiquid financial assets held by banks. In this manner, it is injected into the economy a huge amount of liquidity that, theoretically, should feed into new loans, promote growth and stimulate demand.
This strategy was invented in Japan, but has been used primarily by the Federal Reserve , the U.S. central bank . After a long period of reluctance, a monetary policy with a very similar approach was adopted recently by the Central Bank of Japan to help the growth of a stagnant economy , high public debt and stop the deflation that is created: by injecting $ 1.4 trillion markets . It was wrong and failing choice of for the country of the rising sun, however, considered by many as the only way forward at this point of the economic crisis.
There are many economists that do believe that, after they intervened in the cost of money, the ECB should start with quantitative easing, which has proven to work overseas. By buying government and private bonds is the only way to increase the money in circulation, when there is virtually no room for maneuver on interest rates. Quantitative easing is instead perceived negatively by many emerging countries, which will read the open attempt by industrialized countries to devalue their currencies that want to get back to being competitive in the market .