Quantitative easing

Author : em-admin

Posted : 15 / 01 / 09

Look out for the latest innocent-sounding financial buzz-phrase that hides some very big news indeed. This one sounds more benign than ‘sub-prime loans’. Yet its effects could be just as far reaching, if not more so.

That phrase is ‘quantitative easing’. It may sound like the lesson you forgot in physics class, as Gerard Baker of The Times has put it. But it’s actually what governments do when they’ve run out of options. It means, essentially, printing more money.

It’s what the Japanese central bank did when its economy went belly-up in 2001. (It had already driven interest rates close to zero.) As we write, UK business secretary Lord Mandelson is strongly denying that quantitative easing is even on the agenda. But the US Federal Reserve has already decided to do it, in order to buy up long-term debt. The theory is this lowers the interest rates on these assets, so that loans in general become cheaper and money starts to move around the economy again.

A cynic might say that the jargon is there to hide what’s really going on, just as ‘collateral damage’ sounds better than ‘killing innocent civilians’. Whether that’s true or not, you’re likely to hear it more and more soon: when we searched on Google for the (exact) phrase we got well over three hundred thousand results.