Quantitative Easing

When the Federal Reserve announced its new $800 Billion rescue package earlier this week, the phrase “quantitative easing” began appearing in numerous articles discussing the announcement. Not being an economist, the phrase was new to me and I wanted to know exactly what it means.

I found an absurdly simple definition at Guardian.co.uk:

“Quantitative easing is what non-economists call ‘turning on the printing press’.

In extreme circumstances, governments flood the financial system with money, easing pressure on banks by giving them extra capital.

Ben Bernanke, the chairman of the Fed, won the nickname ‘helicopter Ben’ when he floated just such an idea earlier this decade. US economist Milton Friedman had originally said it would be theoretically possible for governments to drop large amounts of cash out of helicopters for the public to pick up and spend. ”

And Ohio.com lays it out pretty plainly in an article titled, Federal Reserve uses power to print money.

Ok, that’s easy enough to understand, but can it work? Japan tried it from 2001 – 2006. Nobody is certain yet if it was helpful or harmful. Germany tried it following World War I and it was an absolute disaster. Somehow, I don’t find either example reassuring.

It may be time to get a wheelbarrow.

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