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Essay / Quantitative Easing in the US Economy
In an economy that needs money to operate as much as a factory needs oil, quantitative easing seems to be the key when difficulties arise. As former FED Chairman B. Bernanke says, “credit can build an economy, but lack of credit can ruin it.” So after 2001, when the 9/11 terrorist attacks changed our view of international political economy and the Great Recession of 2008 changed our view of international political economy. How we view globalized shocks, the money supply was able to help minimize the impact of these two huge economic disruptions (2011). This article will focus on the policy of quantitative easing in the United States and the European Union, as well as the effects of QE on both. of them and a comparison of their impact.Say no to plagiarism. Get a custom essay on “Why violent video games should not be banned”?Get the original essayQuantitative EasingQuantitative easing is a method used by central banks in order to increase the money supply in the economy. This phenomenon occurs by purchasing securities such as government bonds. This method works due to the belief that commercial banks will use the amount of money currently deposited in their accounts in order to purchase new assets which will lead. to a higher demand for stocks and bonds, leading to an increase in the price of stocks and bonds which will lead to lower interest rates and therefore help generate more investment (ECB, 2018). Quantitative easing in the United States At the start of the crisis in In 2007, the FOMC (Federal Open Market Committee) took liquidity measures to extend the duration of loans to banks and lower the federal funds rate by 50 basis points, which was followed by a total decrease of 325 basis points (FED, 2007). In 2008, the committee further increased the money supply by lowering interest rates, then lowered its target to the lower limit where it still remains (FED, 2008). In addition, in 2008 and early 2009, the FED liquidated American commercial banks which indirectly increased the money supply through the borrowing process (FED, 2009). In 2010 and 2011, the economy was slowly recovering, but a process of quantitative easing remained in place and in 2012, thanks to the monetary policy mentioned above, GDP was growing steadily as the funds rate target federal funds was set between 0% and 0.25% (FED, 2011). President B. Bernanke argued that to achieve the two most important goals, those of full employment and price stability, an expansionary monetary policy was necessary (Fed, 2012). 2013 was Bernanke's last year as FED president and QE remained in place to allow the country to fully recover (FED, 2013). In 2014, new Chair Janet Yellen continued the FOMC's policy of asset purchases and forward guidance to achieve the FED's dual goals (FED, 2014). In 2015-2016, even though the country was no longer facing the effects of a recession, it maintained the monetary policies mentioned above in order to bring inflation down to 2% and reduce the level of unemployment (FED, 2016). In 2017, the FOMC increased the target range for the federal funds rate to between 0.5% and 0.75% and plans to increase the target gradually and until a "neutral federal funds rate is achieved » (FED, 2017). The quantitative easing program in the EU began in 2014 with the "asset-backed securities purchase programs and,, 2017).