Quantitative Easing Explained
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Lothar
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Only watched about 1:45 of it before I got bored.
\"Quantitative easing\" basically means \"print more money\", that much is true. It's normally used in a deflationary environment, which the vid suggests isn't so bad because \"prices go down when people have less money\". We're probably not in a deflationary environment right now, though we've been on the verge several times recently.
IMO the vid misses a key point about a deflationary environment: when prices are going down, people try to delay purchases because a dollar tomorrow is worth more than a dollar today. The stronger the deflation, the stronger the effect. This is a very bad thing -- if people stop spending money, people stop earning money, and there's a downward spiral. The \"velocity of money\" drops significantly, essentially choking the economy. In a deflationary environment, printing more money to trigger inflation is a \"better than the alternative\" response.
\"Quantitative easing\" basically means \"print more money\", that much is true. It's normally used in a deflationary environment, which the vid suggests isn't so bad because \"prices go down when people have less money\". We're probably not in a deflationary environment right now, though we've been on the verge several times recently.
IMO the vid misses a key point about a deflationary environment: when prices are going down, people try to delay purchases because a dollar tomorrow is worth more than a dollar today. The stronger the deflation, the stronger the effect. This is a very bad thing -- if people stop spending money, people stop earning money, and there's a downward spiral. The \"velocity of money\" drops significantly, essentially choking the economy. In a deflationary environment, printing more money to trigger inflation is a \"better than the alternative\" response.