Talk:Quantitative easing

First paragraph

The last sentence of the first paragraph currently states "This is distinguished from the more usual policy of buying or selling financial assets to keep market interest rates at a specified target value." It is true that government debt is a financial asset but it is not true that they can buy other financial assets that are not government debt to control interest rates. So wouldn't it be more correct to change "financial assets" to "government debt"?--Caparn (talk) 22:26, 10 October 2011 (UTC)

Good point, I have changed the sentence accordingly. LK (talk) 02:05, 11 October 2011 (UTC)

Risks

The risks section makes an unwarranted assumption when it states... "This can only happen if member banks actually lend the excess money out instead of hoarding the extra cash." That statement assumes that QE was used exclusively to re-capitalise banks (to encourage them to be in a position to lend more). But QE can be used to purchase any type of asset, not just bank assets. So QE does not necessarily need to directly generate more lending to work. It could be used to purchase say high-quality corporate debt (at near-zero interest) , allowing those corporates to use the cheaper money for investment or even to delever i.e. pay off existing debt which was entered into at a high interest rate. — Preceding unsigned comment added by Lucchase (talk • contribs) 18:57, 30 October 2011 (UTC)

From my reading of the article, the primary purpose of QE isn't taking the asset off someone else's books, it's to inject liquidity via the funds used to pay for the purchased asset. This is true whether the asset is government debt, corporate debt, mortgages, valuable paintings, comic books, etc., and doesn't depend on who the seller is. The key point is that the seller of the asset has (perhaps indirectly) an account with a member bank. In the course of paying the seller for the asset, the central bank will credit the member bank's reserve account. At that point (assuming the seller doesn't withdraw the full proceeds in bills or coin) the member bank can lend most of the extra reserves to another bank, or to its own customers, or otherwise invest it. Thus liquidity is added (at the risk of inflation). This occurs even if the member bank is not the seller of the asset, because it is still in the path of payment for the asset. Presumably, sellers get some benefit by unloading the asset, but the article doesn't really focus on that aspect. 24.93.24.156 (talk) 06:29, 31 October 2011 (UTC)

I'm not sure how clear my previous comment was, so to restate more simply: Banks don't have to be the seller of asserts to benefit from QE, as long as they retain custody of the resulting payments. A seller of $50 million in securities probably won't want a pallet of $100 bills delivered to their office. They are more likely to leave it in their bank, where most of that money then becomes available for additional loans. The quoted statement does not assume that the member banks are the sellers, only that the proceeds of the sale end up in the banks, which I think is the main point of QE. 24.93.24.156 (talk) 08:08, 31 October 2011 (UTC)

Very good point. Probably worth adding that clarification to the main article. — Preceding unsigned comment added by Lucchase (talk • contribs) 10:56, 31 October 2011 (UTC)

Also, the statement "Increasing the money supply tends to depreciate a country's exchange rates versus other currencies." Is an over generalisation or an assumption or plain false. Japan has been using QE for quite some time (along with an ultra-low interest rate), yet it's currency exchange rate has remained very strong. Also, the money supply may increase through an increase in the velocity of that money, which in turn may indirectly lead to an increase the exchange rate. — Preceding unsigned comment added by Lucchase (talk • contribs) 19:26, 30 October 2011 (UTC)

"This is distinguished from the more usual policy of buying or selling government bonds to keep market interest rates at a specified target value."

Buying or selling government bonds being more useful is subjective. Please remove it. — Preceding unsigned comment added by 74.212.173.162 (talk) 21:57, 14 November 2011 (UTC)

"More useful" might indeed be subjective. "More usual" is not. Lagrange613 22:13, 14 November 2011 (UTC)

Printing Money and Monetizing Debt

The following quote from Richard W. Fisher, president and CEO of the Federal Reserve Bank of Dallas has been deleted by Lawrence KHOO with no comments on the discussion page: "Richard W. Fisher, president of the Federal Reserve Bank of Dallas, has said that the US is monetizing debt through QE, referencing the additional $600 billion created for QE2, "For the next eight months, the nation's central bank will be monetizing the federal debt." " Lawrence has just stated in the revision history that "these are meaningless quotes without context" and "That is not context, it's just a random statement". So some discussion on why it is in context is necessary. The Printing money section relates printing money directly to monetizing government debt: " whereas the term printing money usually implies that the newly minted money is used to directly finance government deficits or pay off government debt (also known as monetizing the government debt)." The quote by Richard W. Fisher directly relates the $600 billion created for QE to monetizing the debt. This is quite an important statement and should be placed in the article in this section. Lawrence, where else in the article do you think we can place this statement?--Caparn (talk) 09:33, 16 December 2011 (UTC)

Lawrence regarding your revision comment "God's sake, if they are negative comments about QE, phrase it as such". I'm not sure what you mean? It's just like the quote you added "According to economist Robert McTeer, former president of the Federal Reserve Bank of Dallas, there is nothing wrong with printing money during a recession". This is a positive comment about QE, do you suggest you somehow phrase this differently as it is a positive comment? Wikipedia articles shouldn't be biased one sided views as you appear to be attempting to do with this article.--Caparn (talk) 10:53, 16 December 2011 (UTC)

Maybe we need to add another sub-section under the "Comparison with other instruments" section called Monetizing Debt in which we can add this statement?--Caparn (talk) 20:40, 16 December 2011 (UTC)

When you quote someone, you really should take the whole speech into context. I have changed the paragraph and given it context, pulling a more relevant part of the speech. Caparn, IMO, your single minded editing to slant this article in order to paint QE in the worst light possible is disruptive. LK (talk) 04:32, 17 December 2011 (UTC)

To Caparn: I agree with you that monetizing the national debt is a bad idea. However, if you want to make that point in the article, you should say so explicitly. Or rather, you should quote some notable source who says that. Merely implying that it is bad by using the phrase as you have is weaseling.

Also, it is misleading to use that quotation because the Fed is almost always monetizing the national debt when it eases monetary policy regardless of whether it is doing QE or not. JRSpriggs (talk) 11:01, 17 December 2011 (UTC)

To Lawrence:

• It is clear from the whole speech that Richard W. Fisher president and CEO of the Federal Reserve Bank of Dallas is saying that US is monetizing debt through QE in exactly the quote I put and also there is a reference to the entire speech. How clear can he be he even spells out the maths: " The math of this new exercise is readily transparent: The Federal Reserve will buy $110 billion a month in Treasuries, an amount that, annualized, represents the projected deficit of the federal government for next year. For the next eight months, the nation’s central bank will be monetizing the federal debt."

• In your have removed the line breaks between different peoples quotes and placed a different quote from Richard W. Fisher it in the middle of the paragraph.

• In your edit you have removed the reference to the speech (http://dallasfed.org/news/speeches/fisher/2010/fs101108.cfm) so now no one will be able to find it!

• I do not accept you accusation of putting a biased slant on this article my edits are just making it balanced.

To JRSpriggs:

• I'm not saying monetizing debt is a bad idea, it is just that Lawrence seems to want to edit out anything that demonstrates that QE can-be/is-being used to monetize debt. The fact is there are times when monetizing debt is a good option for a nation but this is a zero sum game.

• I don't think you can put it much more clearly than Richard W. Fisher did with "For the next eight months, the nation's central bank will be monetizing the federal debt.", one thing it certainly isn't is "weaseling".

• Richard W. Fisher is a notable source he is president and CEO of the Federal Reserve Bank of Dallas

• Just because there are other methods the Fed uses to monetize debt does not mean that this one should not be documented. Its amount is also well above the amounts used when it "eases monetary policy" in its normal way.

--Caparn (talk) 12:05, 17 December 2011 (UTC)

I accidentally removed the ref, I have reinstated it. The last paragraph of the section is currently four sentences that all discuss opinions of people from the Federal Reserve. I see no advantage in replacing it with one-sentence paragraphs. LK (talk) 03:19, 19 December 2011 (UTC)

Quantity

The word quantity is currently italicized in the second sentence of the lead after I removed it, but it was reverted by User:JRSpriggs with the edit summary "[to] draw attention to the word 'quantity' to show why this is called quantitative easing". You should never have to draw attention to a word in the second sentence of an article. If you do, it just reflects poorly on the quality of writing. It's not needed in the case and I'll be re-removing it. -Nathan Johnson (talk) 18:28, 16 December 2011 (UTC)

If you can think of a better way to get the point across, then please do so. But just removing the italics without any other change is not acceptable. I will revert it.

Your assertion that "you should never have to draw attention to a word in the second sentence of an article" is arbitrary and unjustified. JRSpriggs (talk) 11:07, 17 December 2011 (UTC)

Quantitative tightening

Should the term Quantitative Tightening (QT) be introduced in this article as the opposite of QE. Where the central bank sells the assets it has bought with QE back to the open market?--Caparn (talk) 01:26, 17 December 2011 (UTC)

I am not aware of any instance of a monetary policy action which might properly be described as "quantitative tightening". If and when a situation arises, following QE, that the central bank wants to tighten its monetary policy, I would expect that it would simply raise its target interest rate above zero. Trying to remove a specific quantity of money would probably be regarded as unreasonably risky since it might accidentally take out too much and cause a credit crunch (push interest rates higher than would be acceptable). JRSpriggs (talk) 11:17, 17 December 2011 (UTC)

I thought it was one of the statements of central banks that they would reverse QE by selling the bonds back to the open market once the economy had recovered?--Caparn (talk) 12:21, 17 December 2011 (UTC)

Yes. But if they sell bonds until the interest rate reaches a certain level that is not "quantitative"; it is just their usual method of tightening. JRSpriggs (talk) 12:26, 17 December 2011 (UTC)

If you search the internet for Quantitative Tightening there are now many result returned. It seems to be an accepted term for the opposite/reversing of QE. For this reason I think inclusion is relevant.--Caparn (talk) 15:17, 17 December 2011 (UTC)

Please read WP:GOOGLE. Among other things counting results from a search engine says nothing about whether a term is accepted in the academic community, which is important in technical articles like this one. I don't see any difference between so-called quantitative tightening and just tightening; in either case the central bank sells assets, and interest rates presumably rise. Lagrange613 16:27, 17 December 2011 (UTC)

The term quantitative tightening has apparently been introduced by Stephen King, Group Chief Economist of HSBC Bank Plc http://economicsintelligence.com/2011/04/07/a-warm-welcome-to-quantitative-tightening/ .
WP:GOOGLE does state that the "google test" can be of use and does give an indication of how much a term is used. If the term is used enough, whether or not by economists, for something the reverse of QE it should still get a mention but with text to say this.--Caparn (talk) 23:03, 18 December 2011 (UTC)

To Caparn: What the journalist, Olaf Storbeck, is describing in the article to which you linked has no similarity to Quantitative Easing, not even the similarity of being opposite to it. It involves using regulatory interference with the credit market to try to prevent inflation. This would be a very foolish policy. And calling it QT would be quite misleading. JRSpriggs (talk) 12:07, 19 December 2011 (UTC)

As JRSpriggs says, this blog entry discusses an entirely different policy than "the central bank sells the assets it has bought with QE back to the open market". I don't think it has sufficient coverage to merit inclusion in this article. Lagrange613 17:32, 19 December 2011 (UTC)

Ok, points taken.--Caparn (talk) 21:44, 19 December 2011 (UTC)

A different policy similar to QE

I've heard recently that the European Central Bank (ECB) are intending to lend new money to private banks at a very low interest rate on the condition that they buy gilts with the money they have been lent. This will have the effect of increasing the monetary base, lowering the yield of government debt and increasing the reserves of the private bank. Has this monetary policy got a name? If it does come to fruition would it be a policy included in the QE article, would it require a new article or as it seems to have no name (that I know of) go undocumented?--Caparn (talk) 21:44, 19 December 2011 (UTC)

I suppose "gilt" (a thin coating of gold over a worthless substance) is an appropriate word to describe the sovereign debt of Greece and the other PIIGS. Encouraging private banks to make bad investments is not something which ECB (or anyone else) should be doing. I have not heard of any specific name being given to this activity.

If it were being done solely to ease credit and the quantity (in euros) of the loans to be made was determined in advance, then I suppose you could call it QE. But I doubt that those conditions hold here. JRSpriggs (talk) 16:34, 20 December 2011 (UTC)

It seems to be getting the name “Sarkozy Trade” and takes the form of unlimited 3 year loans to private banks at very low interest rates from the ECB. The banks then use this money to buy short term government bonds from countries like Italy and Spain, the difference in interest rates can then be pocketed by the banks. I'm not sure how the ECB ensures the money is used to buy government debt? This is thought to be one of the main reasons the yield on Italian and Spanish bonds has dropped recently. http://in.reuters.com/article/2011/12/20/ecb-loans-idINDEE7BJ08S20111220 --Caparn (talk) 07:17, 21 December 2011 (UTC)

The latest news (http://www.bbc.co.uk/news/business-16282206) is that 500+ banks have borrowed a total of over €490 billion euro for 3 years at a rate of 1% from the ECB. Some of the money will/has been used to buy the sovereign debt of Italy and Spain but the ECB has no say in what banks do with the money but Italian and Spanish sovereign debt is paying about 6% so the banks can just take a profit the difference in interest between the ECB 1% and sovereign 6% with the risk they might have to take a haircut at a later date. There are also a lot of bonds maturing in the next year which means the states will need to sell debt to repay the maturing debt. No doubt this expansion in the monetary base will cause more euro inflation, it seems a bit odd that when too much debt is the problem that they try to solve this by adding more debt. It might work in the short term but in 3 years time they might well be in the same situation.--Caparn (talk) 00:24, 22 December 2011 (UTC)