Free Capitalist Network - Community Archive
Mises Community Archive
An online community for fans of Austrian economics and libertarianism, featuring forums, user blogs, and more.

Are interest Rates Dead and Is quantitative easing here to stay?

rated by 0 users
This post has 5 Replies | 2 Followers

Not Ranked
Posts 20
Points 475
complience Posted: Fri, Dec 7 2012 4:33 PM

For a while Ive been trying to workout the effective difference between increasing quantitate easing and increasing interest rates.

QE increase = buying bonds with newly created money
Interrest rate increase = buying bonds with previously borrowed money

Personally I've never understood why anyone would want to buy government bonds. Giving a loan to a man with a printing press is generally a stupid idea.

But in either case the effect on me is the same, as the money Supply will be increased.

Although using borrowed money should guarantee this is only temporary, it is however just ponzi scheme as new loans are taken out to repay the old ones.

Quantitative easing although comparatively crude has the major benefits of transparency and saves on the costs of issuing new bonds.

Have we seen the death of interest rates with quantifiable easing being now the favored method for governments to maintain monetary policy? 

  • | Post Points: 35
Top 10 Contributor
Male
Posts 4,987
Points 89,745

I don't think we can tell with one data point.

I do wonder why the open market operations didn't work, though. I guess the mainstream answer would be "it was a really bad recession."

  • | Post Points: 20
Not Ranked
Posts 20
Points 475

One Datapoint?

Admitly Richard Werner only defined the term in 2008

http://en.wikipedia.org/wiki/Richard_Werner

But the Japaneese have been succesfully undertaking QE for the last ten years or more.
  • The US has now had three rounds of QE, not including 'operation twist'
  • The UK multiple different rounds totaling £200 billion
  • The ECB also undertaking £60 billion worth

Interest rates across these countries have been kept at zero or close to zero for a record period of time.

Maybe not enough data for a conclusive statement, but more than enough to give an option.

 

 

  • | Post Points: 20
Top 10 Contributor
Male
Posts 4,987
Points 89,745

Fine, not one data point, but still - not enough time to tell. After all, we have to be careful to avoid things like stagflation which resulted from a blind belief in the Phillips Curve.

  • | Post Points: 20
Not Ranked
Posts 20
Points 475

Well okay then.. I'm going to call it.

Quantitative easing is now the primary method of monetary policy

Which means countries will be borrowing less money (good)

But printing it directly (bad)

I am just trying to work out if am going to be any better or worse of?

I think the total effect on the money supply will be more or less the same but with QE it is far more transparent and so Central banks will show at least some restraint. 

  • | Post Points: 5
Top 500 Contributor
Male
Posts 112
Points 2,025
Anton replied on Sun, Dec 9 2012 10:19 AM

complience:


QE increase = buying bonds with newly created money
Interrest rate increase = buying bonds with previously borrowed money

 

Pardon me, but will not the wholesale purchase of government bonds result in the decrease of the interest rates? The motive is to decrease the price of future borrowing by purchasing the bonds which would drive the interest rates down.

 

complience:

Have we seen the death of interest rates with quantifiable easing being now the favored method for governments to maintain monetary policy?

I believe the rationale (at least, official one) behind QE was the impossibility of carrying out the monetary policy by conventional means when interest rates are at 0 level.

  • | Post Points: 5
Page 1 of 1 (6 items) | RSS