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What is QE2?
When a central bank is trying to stimulate an economy they decrease interest rates to encourage people to borrow for investment and consumption. However, what happens when interest rates are at effectively zero and can't go any lower?
In short the Central Bank undertake quantitative easing where they "print" money to purchase government bonds. This means they are injecting more money into the system to try and stimulate economic activity. Whether or not it works is a question of debate amongst economists and the like so we wont discuss this in this blog.
In the US, the Federal Reserve will purchase US$105 billion of US Treasuries over the next month to expand monetary stimulus measures in the hope of reducing unemployment and avert deflation. Furthermore, the "Fed" is buying an additional US$600 billion of US Treasuries through to June 2011 and expects to reinvest US$250 billion to US$300 billion of proceeds from mortgage backed debt securities into US Treasuries.
Currently if you invest in a 30 year US Government bond they will give you 4.3% per annum return for the next 30 years. There is a heap of investors sitting on cash and bond type investments at the moment earning this type of return. Lets cut to the chase and go buy real estate and businesses that are returning far in excess of this.
In short the Central Bank undertake quantitative easing where they "print" money to purchase government bonds. This means they are injecting more money into the system to try and stimulate economic activity. Whether or not it works is a question of debate amongst economists and the like so we wont discuss this in this blog.
In the US, the Federal Reserve will purchase US$105 billion of US Treasuries over the next month to expand monetary stimulus measures in the hope of reducing unemployment and avert deflation. Furthermore, the "Fed" is buying an additional US$600 billion of US Treasuries through to June 2011 and expects to reinvest US$250 billion to US$300 billion of proceeds from mortgage backed debt securities into US Treasuries.
Currently if you invest in a 30 year US Government bond they will give you 4.3% per annum return for the next 30 years. There is a heap of investors sitting on cash and bond type investments at the moment earning this type of return. Lets cut to the chase and go buy real estate and businesses that are returning far in excess of this.
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