{"id":2236,"date":"2010-11-03T20:46:43","date_gmt":"2010-11-04T00:46:43","guid":{"rendered":"http:\/\/www.jasonapollovoss.local\/?p=2236"},"modified":"2018-08-17T09:13:37","modified_gmt":"2018-08-17T13:13:37","slug":"quantitative-easing-by-the-federal-reserve-means-little","status":"publish","type":"post","link":"https:\/\/jasonapollovoss.com\/web\/2010\/11\/03\/quantitative-easing-by-the-federal-reserve-means-little\/","title":{"rendered":"Quantitative easing by the Federal Reserve means little"},"content":{"rendered":"

You may have heard that the United States Federal Reserve today announced a “quantitative easing” of $600 billion today.\u00a0 This move is intended to help break the U.S. economy free of its negative vortex of scared consumers and scared businesses.\u00a0 Unfortunately, this “easing” is not going to do anything tangible.\u00a0 Instead, the announcement by the Federal Reserve will operate more at the psychological reassurance level.\u00a0 With interest rates already near-zero percent, people and businesses just are not borrowing money.\u00a0 When interest rates are very low it tends to increase the money supply as there is an increased demand in borrowing.\u00a0 Banks can lend out 90% of the money they take in with the other 10% having to remain in reserves.\u00a0 But the economy still is not really budging that far upward.\u00a0 Certainly the economy is not going up enough to improve the unemployment situation.<\/span><\/p>\n

So now the Federal Reserve is offering to buy government securities.\u00a0 The idea is that the purchases will introduce cash into the economic system.\u00a0 This makes money even cheaper because flat demand with increased supply leads to\u00a0a lowering of the value of everything.\u00a0 But, as I described just a moment ago, low interest rates aren’t moving the economy.\u00a0 But, you might say, $600 billion is a huge amount of money.\u00a0 But it isn’t.<\/span><\/p>\n

The Fed has said that it will stop the easing by the end of the second quarter of next year.\u00a0 That is a paltry $75 billion per month between now and then.\u00a0 That works out to an increase in the money supply of 0.86% per month.\u00a0 That compares to a normal expansion of available money of 0.55%.\u00a0 In other words, we aren’t even talking about an expansion above 1.o%!\u00a0 So how is that going to move the money supply?\u00a0 Would you be excited at work for an 86 cent increase in pay on every $1,000 you earn?\u00a0 Clearly not.<\/span><\/p>\n

The primary effect of the announcement of the quantitative easing is likely hoped to be P.R. driven – that is, done for public relations.\u00a0 By announcing the quantitative easing the Fed is hoping to signal to investors and other interested parties that the Fed is not going to let the economy slip from this point.\u00a0 That is<\/em> potentially valuable.\u00a0 However, I feel this is of a very minor value.<\/span><\/p>\n

So we are still sitting in the midst of the “game of chicken” awaiting a slow recovery, or a miracle…………or a disaster.\u00a0 Isn’t this fun?<\/span><\/p>\n

Jason<\/span><\/p>\n","protected":false},"excerpt":{"rendered":"

You may have heard that the United States Federal Reserve today announced a “quantitative easing” of $600 billion today.\u00a0 This move is intended to help break the U.S. economy free of its negative vortex of scared consumers and scared businesses.\u00a0 Unfortunately, this “easing” is not going to do anything tangible.\u00a0 Instead, the announcement by the […]<\/p>\n","protected":false},"author":2,"featured_media":0,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"_et_pb_use_builder":"","_et_pb_old_content":"","_et_gb_content_width":"","footnotes":""},"categories":[3,15],"tags":[],"class_list":["post-2236","post","type-post","status-publish","format-standard","hentry","category-the-blog","category-predictions"],"_links":{"self":[{"href":"https:\/\/jasonapollovoss.com\/web\/wp-json\/wp\/v2\/posts\/2236","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/jasonapollovoss.com\/web\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/jasonapollovoss.com\/web\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/jasonapollovoss.com\/web\/wp-json\/wp\/v2\/users\/2"}],"replies":[{"embeddable":true,"href":"https:\/\/jasonapollovoss.com\/web\/wp-json\/wp\/v2\/comments?post=2236"}],"version-history":[{"count":0,"href":"https:\/\/jasonapollovoss.com\/web\/wp-json\/wp\/v2\/posts\/2236\/revisions"}],"wp:attachment":[{"href":"https:\/\/jasonapollovoss.com\/web\/wp-json\/wp\/v2\/media?parent=2236"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/jasonapollovoss.com\/web\/wp-json\/wp\/v2\/categories?post=2236"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/jasonapollovoss.com\/web\/wp-json\/wp\/v2\/tags?post=2236"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}