Quantitative Easing 1

   The term “Quantitative Easing” became a popular jargon recently. Following the dramatic worsening of the global financial crisis in the fall of 2008, many central banks quickly moved to the policy to repurchase the agreements and ease the credit for liquidity-hungry banks. The FOMC announced on March 18, 2009 that it would “purchase an additional $750 billion of agency mortgage-backed securities, bringing its total purchases of these securities to up to $1.25 trillion this year, and increase its purchases of agency debt this year by up to $100 billion to a total of up to $200 billion. Moreover, to help improve conditions in private credit markets, the Committee decided to purchase up to $300 billion of longer term Treasury securities over the next six month.”

Most central banks referred to this policy as “quantitative easing” noting that it simply shifted the instrument of monetary policy from the policy rate, which is the price of money, to the quantity of money provided. The Federal Reserve continued to use the term “credit easing”.

   During the financial disruptions, credit easing is important. The Fed chairman, Ben Bernanke said on August 27 that the Fed ready to boost the US economy growth, and had the tools to do so, including increasing holdings of long-term assets such as Treasury Bonds and other securities. I think this will help the boost the economy, giving access to the liquidity and credit.