Quantitative Easing Policy 2

Quantitative Easing Policy 2

Introduction

In the fourth quarter of the 2010, the quantitative easing policy was initiated by the fed designed by Obama for easing the economic pressures faced by the America. The policy purpose was to take a jump start for recovering from the lethargic economy. In this policy, the plan was to buy $600billion long-term treasuries, in order to invest the earlier $300billion in treasury security previously held by the mortgage security. (Gagnon.J 2010) The idea behind this qualitative easing policy was to push up the yields and returns on treasuries and lowering down the bonds. The possibility was that this policy will surge the investments and consumption expenditure. On the other hand, the main purpose was to increase the confidence level for restoring the economic growth. The policy was also focusing on the intention of getting back the trust level of the financial industry with the help of restricting the bonuses of the senior executives. Getting back the confidence level of the financial industry was an important task; it could have helped them in attracting different investors for purchasing treasury securities and bonds. Quantitative easing sounded a very attractive and luxurious ocean liner. Long term treasury bonds were announced by the Federal Reserve pricing around $600 billion apparently for the purpose of declining the long-term interest rates. Still there is a dilemma about the quantitative easing 2 policy that whether it is a good or bad idea.

Outlook

Let's examine that how this policy had worked better for creating the comfortable, economic environment. The strategy used by the Obama and other fed officials for turning the governmental bonds into circulating money is known as monetizing the national debt. The QE is an approach for creating money out of thin air. It is just a strategy used for printing money, whereas the reality is quite different. The money is printed without the assistance of United States bureau of printing. (Gagnon.J 2010) It works in a way that Federal Reserve purchases security in an open market and makes payment with the government checks. The sellers of the security receiving the governments checks deposits it to the bank accounts. Now banks reposition those deposits and gives loans to consumers and businesses. This results in the expansion of the money supply and, therefore, economy faces the downturn. The money supply was not increasing for the last two years but as soon as the qualitative easing 2 policy announced it surged the money supply and resulted in the economic facets. The payment made by the Federal Reserve against the mortgage backed security is still in the burial chamber of the bank's reserves. Many experts suggest that quantitative easing 2 clogged the whole system of the economy.

Pros and Cons

Pros

The basic idea behind this policy was lower the long-term rising interest the initiative was taken by the Federal Reserve for lowering down the rising interest rates. Federal Reserve plan was to stimulate the economy so that un-employment decreases and inflation ...