Quantitative Easing Explained

First off, take this YouTube video with a grain of salt. It’s more of an animated appeal to anti-Bernanke and anti-Fed fans, but is hilariously scripted, targeted to the layman, has over 5 million views, with over 18,000 likes as opposed to 800 dislikes. It discusses the issue of Quantitative Easing (QE1), its false pretenses and high risk, and the implications of the second round referred to as QE2. Quantitative easing (QE) is an unconventional monetary policy used by central banks to stimulate the national economy when conventional monetary policy has become ineffective. A central bank buys financial assets to inject a pre-determined quantity of money into the economy. This is distinguished from the more usual policy of buying or selling government bonds to keep market interest rates at a specified target value.

In this animation, a conversation ensues explaining the inefficiencies of the Fed and the risky devaluation of the U.S. dollar through QE if the price level is underestimated. We read Bernanke’s article about how the faulty, tightened monetary policy of the Fed during the Great Depression contributed to the prolonging of failing economy. Today, it is arguable that the extremely loose monetary policy associated with QE1, QE2, and a potential QE3 (knock on wood) could backfire, increasing the price level, and cause dangerous double-digit inflation in the attempt of avoiding the deflation that every economist has feared since the mishandling of the Fed during the Great Depression.

http://www.youtube.com/watch?v=PTUY16CkS-k