There was a popular cruise ship and transatlantic liner run by Cunard Line named the Queen Elizabeth II, but often just called the “QE2.” Now, QE2, QE3 and QE infinity are short for versions of a monetary policy tool called “Quantitative Easing” or “QE” for short. Quantitative Easing refers to a policy of vastly increasing the money supply by Federal Reserve (“the fed”) purchases of private assets, many of which can be sold when and if we get out of this our present economic crisis (and the money supply reduced). Recently, the Federal Reserve has by buying about $85 billion dollars of assets a month and this has been ongoing for a while now.
In 2008, Ben Bernanke started a new policy of pushing down interest rates and increasing the money supply with a program of quantitative easing. The quantity that was easing was the quantity of money in the system. The first round of this quantitative easing was accomplished by the Federal Reserve buying massive amounts of various financial assets, particularly bad debts, much of it from mortgage backed securities. Quantitative easing is a policy used to vastly increase the supply of money to help stabilize the economy when traditional money supply increases through purchases of government securities do not seem to do the trick. We are now on our third round of quantitative easing, or QE3,
This has pushed certain interest rates down to near zero, getting into a range John Maynard Keynes called the “liquidity trap,” a place where monetary policy becomes ineffective.
Just as there were reports that the QE2, the ship, had been scrapped, and it now seems that those reports were wrong, there had also been speculation that the fed would put an end to quantitative easing, it seems that the fed will, for now, continue to pump an additional $85 billion into the economy each month.
Let’s hope that we save the ship (“God Save the Queen”), but scrap the monetary policy before weight of the cash to buy a loaf of bread is enough to sink that ship.