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by roblev
4672 days ago
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There are a few misconceptions about money here. - QE is about creating new money. The buying of loans is merely a way to distribute it; instead of just giving the money away, the central banks buys an asset (any asset would do) so nobody gets an unfair advantage through distributing the new money. - all loans can be repaid. At the end, people would just own dollar bills which in turn don't depend on anything else for their value. - a lot of the confusion around money comes from confusing different sorts of money as being the same thing. We commonly use two sorts of money: Base money (e.g. dollar bills) that depend on nothing. This form of money can only be (legally) created and destroyed by the central bank. The second form of money is Bank money which is a loan of Base money. THis form of money can be created or destroyed by many individuals and banks. - As an example of Base money vs Bank money, when I pay $100 into a bank, I have really loaned the money to the bank - it owes me $100. Yet I can "spend" this loan with my bank card and by goods from a shop, now the shop is owed $100 by the bank. The loan is a form of money; I really did have some Bank money. But the original $100 bills were sat in the bank vault, and they are definitely still (Base) money. |
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As I said QE is about creating money in the short term. However, there are vary good reasons why the FED buys bonds vs say Gold. A major goal is to reduce the interest rate on long term loans. But, this means that the asset they acquire is generally worth more nominal dollars in the future. So when sold or simply paid back the money supply shrinks.
That's not to say the FED can't purchase more assets to make up for the lost money. But, the temperary nature of QE is seen as a benifit that helps avoid inflation.