Quantitative Easing & FED

Quantitative Easing & FED

Introduction

Central banks throughout the world have recently engaged in two kinds of unconventional monetary policies: quantitative easing (QE), which is “an increase in the size of the balance sheet of the central bank through an increase it is monetary liabilities. Today the world is indebted for the states to consumers, through commercial banks and businesses. The worst part is that because of the recession, all players are at best less able to repay their debts, or at worst increasingly forced to borrow more to repay their debts (USA). In fact there is a widespread inability to repay the debt.

Background of Quantitative Easing

History

Since the financial crisis of 2007, two quantitative easing (QE) have been implemented. The first was announced on 18 March 2009. At that time, the question that arose was: how to further support the economy when interest rates are close to zero? Indeed, the Federal Funds Rate (interbank base rate) increased from 5% in 2007 to 0% in early 2009 to avoid systemic risk after turning Fannie Mae and Freddie Mac (institutions that guarantee mortgages), the difficulties of AIG, and the takeover of Merrill Lynch by Bank of America and the rescue of Bear Stearns by JP Morgan.

So QE1 allowed the purchase of 300 billion GSE debts, 300 billion public debt and 750 billion dollar mortgage backed securities (bonds formed securitized real estate).

The QE2 was launched in November 2010, the Fed holding the weak economic recovery and the pace of job creation not fast enough. Thus, 600 billion public debts were repurchased by the institution and securities maturing resumed.

In September 2011, she again bought U.S. Treasury bonds of 600 billion dollars, but the money came from the time of the maturity of government bonds or securities MBS kind. The balance sheet of the central bank is therefore not increased.

Financial Crises & QE

Since the financial crisis of 2007, two quantitative easing (QE) have been implemented. The first was announced on 18 March 2009. At that time, the question that arose was: how to further support the economy when interest rates are close to zero? Indeed, the Federal Funds Rate (interbank base rate) increased from 5% in 2007 to 0% in early 2009 to avoid systemic risk after turning Fannie Mae and Freddie Mac (institutions that guarantee mortgages), the difficulties of AIG, and the takeover of Merrill Lynch by Bank of America and the rescue of Bear Stearns by JP Morgan. So QE1 allowed the purchase of 300 billion GSE debts, 300 billion public debt and 750 billion dollar mortgage backed securities (bonds formed securitized real estate). 

The QE2 was launched in November 2010, the Fed holding the weak economic recovery and the pace of job creation not fast enough. Thus, 600 billion public debts were repurchased by the institution and securities maturing resumed. 

In September 2011, she again bought U.S. Treasury bonds of 600 billion dollars, but the money came from the time of the maturity of government bonds or securities of such MBS. The balance sheet of the central ...