Quantitative easing (QE) is a simple electronic method by which a government or central bank “prints more money” to support private banks. In short, another bank bailout.
The money is not actually physically printed at a mint or based on the value of gold or anything else; it is, believe it or not, created out of thin air and the value of it is established in a form of promissory notes, or bonds, which are available only through the banks who have, of course, received the quantitative easing.
The basic concept of quantitative easing is to increase the excess reserves of private banks. There is no other benefit to quantitative easing.
Keep in mind, at this time, that private banks in the West (U.S. and Europe) can borrow public money at 0% (zero percent) or close to it and lend it back (maybe) to the public at around 5% interest and up to 30% in some instances through credit multipliers. Thus private banks get money for nothing (no interest) AND get quantitative easing (which cost nothing to create) AND their success is guaranteed by the public, the latter known as public debt.
In simple terms
Imagine this: your acquaintance logs into his internet banking account, he wants more money, he changes his bank balance himself (something which you can’t do with your bank account). He transfers you an amount but asks for it back immediately. If you can not give him “his money” he sues the crap out of you and, God forbid, start foreclosure on your house. There, your acquaintance is a quantitative easer.
Quantitative easing debate
The practice of quantitative easing has raised a lot of debate – and not without reason. To date, quantitative easing has not stimulated any economy anywhere at any time in history, yet. It did, however, add significantly to bank profits. The Rolling Stone’s Matt Taibbi calls quantitative easing “The Hidden Government Subsidy for Banks.” Ellen Brown points out that “adding more reserves to a banking system that already has more reserves than it can use has no net effect on the money supply.” Robert Skidelsky says that “what matters is not printing money, but spending it.” David DeGraw feels that quantitative easing violates the rule of law.
As with all debates there are, obviously, two sides to the story. Quantitative easing does have support from some economists. But in general the public – the people who guarantee these funds – feel that the trillions of bailout dollars could be better spent elsewhere. And since you are the guarantor you surely should know what a trillion dollars look like. (Hint: just one trillion dollars in $1000 bills is 65 miles high, ala USA Watchdog. The bailouts total many trillions of dollars – nobody actually knows the precise amount.)
Quantitative easing explained easily
Still unsure how quantitative easing works? The BBC explains how money is created out of nothing and NPR says nobody really knows if this works. Wikipedia has some history of quantitative easing. But the most fun explanation of quantitative easing is by video: