Do You Know What The Effects Of Quantitative Easing Has On Commercial Banks?
This post was originally posted here. The writer, Kyith Ng is a veteran community member and blogger on InvestingNote, with a username known as @kyith and has 1095 followers.
Quantitative easing means to liquify the financial markets and the main economy, a lot of money was pumped into the financial system.
The straightforward deduction is that if you create money from out of nowhere, either your currency is going to shit or that inflation will run rampant.
We are not seeing both in the United States right now but a lot of the people are speculating it will be a matter of time.
I wonder whether that will really happen. I say this because I can’t say I am that competent to make that deduction. Usually, we have to know to a good extent what I am talking about to make that conclusion.
I do think that from what I hear, we have created an interconnected system that will create more than 2 standard deviations, 3 standard deviation volatility.
One of my favorite people on the financial blogosphere Cullen Roche of Pragmatic Capitalism explained that when the Federal Reserve infuses money, it is an exchange of very short-term liquid money with long-duration money/bonds.
In a way I understand it but if I cannot illustrate it out well, then maybe I do not understand it as well.
In any case, BCA has a good explanation about what happens when the Central Bank buys back commercial securities from the banks.
It sought to help to explain the relationship of Central banks with the monetary system.
I used to not get the relationship of Central Banks that well but the way to think about them is like the Bank of the financial institutions. They somewhat act as the lender of last resort.
If banks produce the lifeblood of the financial system, then they have to be functioning.