Monday, August 9, 2010

The Federal Reserve meets tomorrow---You may hear a new term "Quantitative Easing"--Learn about it first HERE!!

This video explains in VERY simple terms (even I can understand it!) the concept of "Quantitative Easing".  From what I am reading, it is very possible the Federal Reserve tomorrow will report that they are going to use this method for "stimulating" the economy.  The video starts out a little slow.  He gives an overview of the important Federal Funds Rate before getting into quantitative easing, which you are NOT going to want to miss!!! :)


This definition of Quantitative Easing from Wikipedia
""The term quantitative easing (QE) describes a form of monetary policy used by central banks to increase the supply of money in an economy when the bank interest rate, discount rate and/or interbank interest rate are either at, or close to, zero.[citation needed] A central bank does this by first crediting its own account with money it has created ex nihilo ("out of nothing").[1] It then purchases financial assets, including government bonds and corporate bonds, from banks and other financial institutions in a process referred to as open market operations. The purchases, by way of account deposits, give banks the excess reserves required for them to create new money by the process of deposit multiplication from increased lending in the fractional reserve banking system. The increase in the money supply thus stimulates the economy. Risks include the policy being more effective than intended, spurring hyperinflation, or the risk of not being effective enough, if banks opt simply to pocket the additional cash in order to increase their capital reserves in a climate of increasing defaults in their present loan portfolio.  "Quantitative" refers to the fact that a specific quantity of money is being created; "easing" refers to reducing the pressure on banks.[2] However, another explanation is that the name comes from the Japanese-language expression for "stimulatory monetary policy", which uses the term "easing".[3] Quantitative easing is sometimes colloquially described as "printing money" although in reality the money is simply created by electronically adding a number to an account. Examples of economies where this policy has been used include Japan during the early 2000s, and the United States and United Kingdom during the global financial crisis of 2008–2009....""
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