LONDON (AP) - It's the stimulus measure with the long, baffling name.
LONDON (AP) — It's the stimulus measure with the long, baffling name.
Quantitative easing, or QE — the large-scale purchase by a central bank of government bonds and other securities — has been used by the U.S. Federal Reserve, Bank of England, and the Bank of Japan.
It's often called "printing money." No printing press is involved but the measure does rely on central banks' power to create money.
Here's how it works:
— The central bank buys bonds from private banks.
— It pays for the bonds by simply increasing the amount of money in the reserve accounts that the private banks must have with the central bank. The money is created from nothing. It's done electronically, but it's money all the same.
— With more cash in store, banks will tend to offer loans at lower interest rates. That can make it easier for businesses to expand and consumers to spend.
— The money can also make its way into financial markets, driving up the prices of stocks and bonds. Holders of those assets feel wealthier and more inclined to spend.
— Having more money in the financial system also tends to weaken a currency's value. That boosts exports by making them more competitive internationally, helping economic growth.
Measuring the effect of QE is difficult. Unemployment fell steeply in the U.S. after it was used. But skeptics caution it inflates the prices of stocks and bonds excessively — setting investors up for a fall later on.