Yisroel Kraut
Money and Banking
Prof. Decandia
Essay for Final
June 23 2013
Too Easy
When the Fed decided to unwind the Quantitative Easing Program, the economy got a jolt. When the Fed pours money into the economy it usually stimulates the economy and spurs some growth hopefully. Quantitative Easing is basically an unconventional monetary policy used by banks or central banks to stimulate the national economy when standard monetary policy has become ineffective. A central bank implements quantitative easing by buying financial assets from commercial banks and other private institutions, thus increasing the monetary base. This is distinguished from the more usual policy of buying or selling government bonds in order to keep market interest rates at a specified target value. These policies also contributed to the improvements in market confidence and the bottoming out of the recession in the second half of 2009. Quantitative easing may cause higher inflation than desired if the amount of easing required is overestimated, and too much money is created by the purchase of liquid assets. In November 2010, a group of conservative Republican economists and political activists released an open letter to Federal Reserve Chairman Ben Bernanke questioning the efficacy of the Fed's Quantitative Easing program. The Fed responded that their actions reflected the economic environment of high unemployment and low inflation. These Republican economists were dead right, as the banks had no idea what was flying with zero oversight. The same can be said about the consultants hired to look over all these loans as the NY Times article states: “Last month, the Office of the Comptroller of the Currency scuttled the foreclosure review by independent consultants because it was marred by delays and inefficiency.” Regarding Bonds, Quantitative Easing is defined as buying financial