Since the beginning of the Great Recession, the Federal Reserve Bank

Since the beginning of the Great Recession, the Federal Reserve Bank

Since the beginning of the Great Recession, the Federal Reserve Bank

Since the beginning of the Great Recession, the Federal Reserve Bank has engaged in expansionary monetary policy (buying US Treasury bonds) with the goal of promoting economic recovery.Most Americans think when the Federal Reserve buys these securities they must “get the money” from somewhere. Actually the Federal Reserve Bank has the perfect “money tree” because it is able to simply create “new money”. That means it doesn’t actually need to have “the money” when it purchases securities.The Federal Reserve simply writes a check or does a wire transfer to the seller of the security. Very often the seller is the U.S. Treasury who has just created new bonds to finance the deficit! At this point there is newly created money. No Federal Reserve account with “money in it” somewhere is decreased as a result of the bond purchases.So how do they do it? It is called “Quantitative Easing” or simply QE!Please respond to all of the following prompts:Have you ever heard of QE before?What was the most surprising thing you learned from the websites?If the money supply continues to expand what does that eventually imply about inflation?

 

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