Qe

Barneysmom

Can someone please explain to a complete dummy what QE is?

Marcheline

I'm not clued up on these things myself, but it might be quantitative easing: http://news.bbc.co.uk/1/hi/business/7924506.stm

ray123

A basic analogy is printing money and dropping it out of a helicopter...

Degenerate

ray123 wrote: »

A basic analogy is printing money and dropping it out of a helicopter...

Nope. You fail at economics.

Heyman_2

It's a tool used for temporarily propping up an economy when a General Election is looming!

ray123

What is quantitative easing?
Ben Bernanke, the chairman of the US Fed, once suggested quantitative easing is akin to dropping money from a helicopter.
I never even studied economics and i seem to have a better concept than you!

What is economics all about - get five economists and put them in a room together. Guarenteed that they will all have different answers.
Taken from the BBC:

How will it work? Even economists who agree with the quantitative easing policy often disagree on how exactly it will work. But there are two main ways it could boost the economy, which are really two sides of the same coin.

No wonder the ECONOMY is on the verge of collapse!

In my opinion as a economist - it seems like anyone can be one (just make it up as you go along) - to be very technical, we are scr%wed!

One thing is for certain, it would be fairer to drop the money out of a chopper rather than buy up bad assets in failing businesses (RBS, etc), because how much of that money will I see of this money, not a penny...

Generali

Barneysmom wrote: »

Can someone please explain to a complete dummy what QE is?

Colloquially, it's 'printing money'.

The Bank of England presses a few buttons and increases the Government's bank balance. They then use that money to buy assets from banks. Banks then (in theory) lend that money to you and I who spend or invest it.

The reason it may be inflationary is this. Imagine a situation where you have 2 thirsty people (you and I) and one beer.

If you have £3 and I have £2.50 then you can outbid me for the beer and would end up paying perhaps £2.55 for it.

Imagine the same situation but someone comes in and lends me a pound during the bidding process. I can now outbid you and pay £3.05 for the beer.

In both situations there is only 1 beer to be had but in the 2nd example the price of the beer is higher so what changed? The amount of money available to the potential buyers of the beer is what changed.

'Printing money' doesn't mean more goods are produced. Potentially it means that they cost more money that is worth less.

treliac

Generali wrote: »

Colloquially, it's 'printing money'.

The Bank of England presses a few buttons and increases the Government's bank balance. They then use that money to buy assets from banks. Banks then (in theory) lend that money to you and I who spend or invest it.

The reason it may be inflationary is this. Imagine a situation where you have 2 thirsty people (you and I) and one beer.

If you have £3 and I have £2.50 then you can outbid me for the beer and would end up paying perhaps £2.55 for it.

Imagine the same situation but someone comes in and lends me a pound during the bidding process. I can now outbid you and pay £3.05 for the beer.

In both situations there is only 1 beer to be had but in the 2nd example the price of the beer is higher so what changed? The amount of money available to the potential buyers of the beer is what changed.

'Printing money' doesn't mean more goods are produced. Potentially it means that they cost more money that is worth less.

Gen, you explain things so straightforwardly.

So, would I be right to think that joe public will be able to buy less for their money, thereby leading to a rise in the cost of living?

Or isn't it as simple as that? Because if it is, the people ain't gonna be happy.

Heyman_2

Have to agree that Generali's description is a good one.

Obviously the extent to which it applies varies on how much extra money will be sloshing around in the economy as a result of QE.

Possibly more important than that though is the confidence factor - banks aren't going to be rushing to lend this money out without confidence that they will make money on the loans and given how badly they've been burnt by the last decade of cheap and widely available credit, I think this will take much longer than everyone is expecting.

Lotus-eater

Its basically like a dilution of shares isn't it....... I mean there is more money now, so the money must be worth less...?

Radiantsoul

Lotus-eater wrote: »

Its basically like a dilution of shares isn't it....... I mean there is more money now, so the money must be worth less...?

Yes...that is correct.