In our world, crises occur everywhere. One of the most significant is the economic one. When it occurs in a small country, it is hardly noticeable. But the economic crisis in the US, the EU or China can affect the entire planet. And this is not surprising - after all, each of this economy owns 3/5 of the total gross domestic product of the planet. But if there are negative trends, then they need to somehow fight. In the US, quantitative easing is used for this. The Fed is responsible for the announcement and implementation of this approach. Let's find out what this program includes, how it is implemented and what the consequences are.
What is the quantitative easing program?
This is the name of monetary policy used by central banks to increase money supply due to the growth of reserves of commercial financial institutions. There are three types and two types of programs. The quantitative easing in these cases varies according to the approach taken and to the subjects of influence. Therefore, there is a significant difference in the implementation of the policy. If we talk about types of programs, they are active and passive. About the species, we can say that there are three of them, which are denoted as QE 1, QE 2 and QE 3. Let's talk about them in more detail.
Passive type
This is the name of monetary policy, in which, in order to deal with problems, central banks launch various programs aimed at increasing the liquidity of the financial system. What is the meaning of this type? In this case, the financial institutions are assigned the right to apply to the central bank with requests to deposit funds into their account in exchange for various securities, which in this case act as collateral. Although this is initiated by the central institution, only a variety of private organizations are used to participate in them.
Active type
This is the name of the policy under which immediate payment of purchased state and / or risky securities is made. In this case, the mechanism of simple addition of money to the account is used. Purchases of this kind lead to the fact that the size of the balance that the central bank has is increasing. Also, the amount of reserves and money supply is growing . As an added bonus, central banks also reserve the right to clearly control the process of changing the size of the monetary mass. The only restriction that applies to programs of this type is the government's desire, ability and ability to prevent potential losses.
The first type of quantitative easing
For its designation the abbreviation QE 1 is used. The purpose of these actions is to save large corporations, banks and private enterprises. For this, a buyout was used out of debts that were depreciated. During the activity of this program, the Federal Reserve System of the United States bought out mortgage and other bonds at a fantastic amount for us - $ 1.7 trillion. It began operating in November 2008 during the outbreak of the global economic crisis. It ended - in 2009. As practical results showed, it had a "therapeutic" effect, and soon after the termination its result was minimized. Therefore, the program of quantitative easing of the Fed was continued in the future. At the same time, certain changes were introduced.
The second type of quantitative easing
For him, the designation QE 2 is used. Its launch was announced on November 2, 2010. It was supposed that the main attention will be paid to treasury bonds. They were bought for $ 600 billion - this process lasted 8 months. Also, the forces of the federal reserve system reinvested some of the bonds from the first type of program. The amount in this case was 300 billion US dollars. This program ended in June 2011. The main objective of this monetary policy was to achieve a result in which the economy would lose sensitivity to cheap credit and increase liquidity.
The third type of quantitative easing
This program was launched on September 13, 2012 and received the designation QE 3. Treasury and mortgage bonds were repurchased on a monthly basis in the amount of 45 and 40 billion US dollars. Initially, it was planned that this program will operate several quarters. But it was declared closed only on October 29, 2014. As the main criterion used the position of the US economy.
What is the quantitative easing program and what are the current prerequisites for the state of affairs?
The US Federal Reserve came up with a good name. But what is behind it? Where did the money for the redemption of bonds come from? You can ask many more questions that need to be answered. In fact, the process, which is called quantitative easing, is known to the public as the issue of money. But this is already seen by many experts as a gross abuse of authority. So, when the circulation channels are overloaded with a significant amount of money, this leads to an inflationary price increase. There is a violation of macroeconomic equilibrium, incentives are being destroyed to increase labor productivity. Well, as a supplement, we can talk about the increasing socio-property polarization of society. This can be read in any textbook on economics. Students who study the economic aspects of public life must learn this as a multiplication table. And the peculiarity is that this program is under the control of the state.
So, in most countries of the world it is the government that decides when to include the machine and increase the money supply, which is in circulation. In the US in December 1913 (that is, over 100 years ago) control over the machine was transferred to the largest private bankers. Their union is called the federal reserve system. It was believed that private traders would be better able to cope with it. And now the program of quantitative easing in the US is managed by them, with only consultations being held with the government. Initially, bankers did not abuse the opportunities they received. But in the years of great depression, the law on forced confiscation of valuable metals was adopted, since all the money had to be provided. But thanks to the elimination of the gold brake along with the Bretton Woods system in the 70s of the last century, the situation became deplorable.
Current state of affairs
Since then, the amount of money (although not as fast as in the programs under consideration) has increased. Remember what was written earlier. One of the goals of the second program was to make the economy so that it was insensitive to an increase in the money supply. And it was quite successful. Quantitative easing in the US has its results, in fact, despite a significant increase in the money supply, there has been no tangible result for the whole country. At the same time, it is necessary to take into account that it is recommended that the economic sciences primarily use the interest rate instrument to make money cheap or expensive. But because of the considerable monetary weight, it keeps at the level of 0-0.25%. Thus, money is the sea, but they are not working to develop production and satisfy people's need for something. That is, the interest rate tool no longer fulfills its task. The efficiency of the money market is falling, and an administrative-command approach is developed regarding the production and distribution of banknotes. In this case, all this is possible due to the fact that the policy of "quantitative easing" is being implemented.
Results of interventions
It is not necessary to talk about obtaining a prolonged positive effect. The quantitative easing policy provides a result for a period of 3-6 months. Particular attention is focused on positive short-term effects. So, as such they mention the increase in the solvency of the population, the weakening of the currency (which will lead to advantages for exporters and the devaluation of debts), and a number of other advantages. But it should be borne in mind that the policy of quantitative easing of the US will have only short-term macroeconomic effects. In addition, this is accompanied by a cutback in budget expenditures and an increase in the level of taxes (for example, the expiration of the tax breaks introduced in 2008 during the crisis ended and they were not extended). Also, when there is talk about quantitative easing and it is mentioned that this is a winning policy, it must be remembered that in the realities of the modern world there are also losers. Therefore, other countries make certain decisions to ensure that the revival in the US does not occur at their expense. And in this case, quantitative easing loses its effectiveness.
Thus, it is not necessary to say that everything is positive and the currency is moving towards a brighter future. In addition, this tool can be used as long as there are people willing to buy money. And what happens if they run out? There will be no one else who can or will want to buy them? In this case, one can speak at least about significant inflation - about a crisis that our world has not yet seen.