Comment by tonytran2015: Risky financial assets have been sold through QE at unjustifiably high price to Central Banks, that is to the taxpayers. It is a blatant “Privatizing profits and Socializing losses”.
Quantitative easing (QE) is a monetary policy whereby a central bank purchases at scale government bonds or other financial assets in order to inject money into the economy to expand economic activity. Quantitative easing is considered to be an “unconventional” form of monetary policy, which is usually used when inflation
is very low or negative, and when standard monetary policy instruments have become ineffective. The term “quantitative easing” was coined by German economist Richard Werner in 1995 in the context of the Japanese crisis.
A central bank implements quantitative easing by buying financial assets from commercial banks and other financial institutions, thus raising the prices of those financial assets and lowering their yield, while simultaneously increasing the money supply. In contrast to conventional open-market operations, quantitative easing involves the purchase of more risky assets (than short-term government bonds) and at a large scale, over a pre-committed period of time.
Central banks usually resort to quantitative easing policies when
their key interest rates approach or reach zero (a situation described
as the “zero lower bound“) which induces a “liquidity trap”
where people prefer to hold cash or very liquid assets, given the
perceived low profitability on other assets. In such circumstances,
monetary authorities may then use quantitative easing to further
stimulate the economy.
Quantitative easing has been largely undertaken by all major central banks worldwide following the global financial crisis of 2007–08 and in response to the COVID-19 pandemic. Quantitative easing can help bring the economy out of recession and help ensure that inflation does not fall below the central bank’s inflation target.
However QE programmes are also criticized for their side-effects and
risks, which include the policy being more effective than intended in
acting against deflation
(leading to higher inflation in the longer term), or not being
effective enough if banks remain reluctant to lend and potential
borrowers are unwilling to borrow.