Overview of Quantitative Easing

When manipulating interest rates does not propel the economy forward far enough, the Fed does not remain dormant; instead, the Fed proceeds with its favorite game named Quantitative Easing (QE), a game it has become increasingly ardent to play.

According to Investopedia, Quantitative Easing refers to an “unconventional monetary policy in which a central bank purchases longer-term securities from the open market” as a means to expand the money supply, and thus stimulate economic growth. The execution of QE is induced upon the Fed’s inability to further lower interests when interest rates are already near zero. This is when the Fed engages in purchasing government bonds, as well as a myriad of other securities, ultimately increasing the money supply and the liquidity in the system.

Quantitative Easing may successfully stimulate countries’ economies if conducted properly, but in the case of the United States, despite the Fed injecting liquidity- and thus cash- into the economy, it is only the borrowers that may successfully carry out the Fed’s intention. In other words, people and investors are the ones that need to seek loans in order for the money to begin circulating- and increase the velocity of money in the economy.

Moreover, QE may backfire through the over-devaluation of the country’s currency; however, this may be counterbalanced by…