By Chuck Butler, Editor
www.worldcurrencywatch.com

I had a few emails yesterday asking me what "quantitative easing" is. I explained all this all a month or so ago, but I want to explain it again for any new students who are wondering just what the heck I'm talking about...

Quantitative easing is when a central bank creates new money out of 'thin air', and injects it into the banking system. The aim is to increase the deposits in private banks so that, by way of deposit multiplication, they can increase the money supply by increasing debt (lending).

'Quantitative' refers to the money supply. 'Easing' refers to reducing the pressure on banks. A central bank can do this by using this new money to buy Treasuries in the open market, or by lending the new money to deposit-taking institutions, or by buying assets from banks in exchange for currency, or any combination of these actions.

These have the effects of reducing interest yields on government bonds, and reducing inter-bank overnight interest rates, and thereby encouraging banks to loan money to higher interest-paying bodies. So there you have it…