What is Quantitative Easing and its Impact on World Economy

When the world saw a huge financial crisis the past few years, it was up to governments to make sure that the economy did not come to a complete halt. For the United States, this meant that the Federal Reserve stepped in with the option that was meant to help known as quantitative easing. This is basically where the Feds will issue money to banks in the form of bonds and savings accounts. In return, the banks have more money that they can loan to those that are in need of this. We saw this take effect with the housing market since the banks quit loaning money, yet they were bailed out by the government in order to allow them to loan more money.

Quantitative easing has been used in the past several times, especially after the financial disaster of 2008. During this time, the Feds gave two bailouts in order to help banks and to help auto makers as well. In both situations it did have different results. When considering the impact of using this solution on the world economy, there are several things that must be considered.

First off, it did backfire on the economy in the way that the banks were still not lending money as this was meant to do. Instead, the banks were keeping the money in fear that they would suffer another financial meltdown. This meant that the world economy simply went downhill. Homes were not being purchased, new cars were not being purchased, basically people quit using credit since they were afraid that in doing so that they would dig themselves into a huge hole. Secondly, more and more people found that their standard of living decreased dramatically. There were fewer items that were being purchased and the prices of goods were increasing, while the income level was not.

The overall effect was a domino effect. Every sector of the world market suffered when the financial meltdown occurred. However, after the second quantitative easing took place, the market did pick up. It became easier for people to get the money that they needed, which was then reinvested back into the economy.



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