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Nov 05

What is Quantitative Easing?

I love Felix Salmon’s description which I’ve shortened and paraphrased just a little bit…

The people selling Treasury bonds to the Fed are big banks, who are told in advance exactly how many Treasury bonds the Fed wants to buy. As a result, they’re likely to buy Treasuries ahead of the auction, with the intent of selling them to the Fed at a profit. … Once the banks have made that profit, it’ll get paid out in bonuses to the people on the bank’s Treasury desk, with the rest going to their shareholders. We’re not exactly helping the unemployed here.

As Felix goes on to say…at the end of the day, it will be up to the banks to take their extra money and go out there and lend it. They haven’t done it so far and there are no guarantees they will be in the short term future but lets hope things change this time.

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