Quantitative Easing
Brent Tantillo • November 5, 2009 • Uncategorized
During Japan’s banking crisis in the early part of this century, the Bank of Japan pioneered a process called quantitative easing (QE) whereby the central bank massively boosted the reserves that commercial banks held in its coffers.
Bernanke and Co. have been using QE to prop up our own financial institions since the meltdown of the financial institutions last fall. QE came under fire in Japan because its highly deflationary as interest rates are kept near zero, and for its failure to allow lenders to create a secondary market among each other to lend money. As the Economist explains, banks kept going back to the Bank of Japan for loans, rather than each other, which ultimately freezed up credit and kept Japan in economic recession for the last decade. This is a cautionary tale for the Obama Administration and the Federal Reserve as they explore ways to help our economy recover from our current recession.
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