subject: Handling Recession and Deflation through Quantitative Easing [print this page] Handling Recession and Deflation through Quantitative Easing
Quantitative easing is one of the concepts in economics that is gradually becoming the most important monetary policy tool in resolving the difficulties in today's economy. Recession and deflation is greatly threatening the present conditions of the global economy and quantitative easing is one of the most feasible solutions that the central banks like the Federal Reserves can easily implement. Quantitative easing can be simply defined as flooding of monetary supply by the central banks resulting in the immediate increase in the market's cash reserves. These cash reserves will be distributed to the sectors that need it the most and are expected to resolve the majority of the financial difficulties.
Quantitative easing, though highly criticized and doubted, has many benefits once successfully implemented. By utilizing this monetary policy tool, yields will be moved at the farther end of the yield curve, thus, a decrease in the long-term interest rates. Once these interest rates are kept minimal for an extended period of time, a significant delay on deflation will occur. Exports and international trading can be further strengthened by the huge amounts of cash reserves delivered by quantitative easing that can be used to purchase and trade off goods in the international market.
Quantitative easing resolves the financial instability of the economy by huge quantities of cash. As long as these large cash reserves is properly distributed and put into good use, the economy can reap great benefits.Quantitative easing is carried out by central banks by cutting short-term interests to zero percent and indicating the length of its validity and by purchasing long-term securities like Treasuries and corporate bonds. This monetary policy is easy to understand, but still, the advantages and disadvantages that people can derive by its implementation are yet to be experienced.
