The Government buys its own bonds from banks with money that it creates. Bond prices go up, interest rates go down and banks keep buying bonds of which there is a good supply since Governments are so indebted. The money supply goes up, there is no impact on economic activity except via two mechanisms – interest rates being low reduces borrowing costs for those on variable rates and the exchange rate weakens boosting exports. The latter is the undeclared objective – it is called “beggar thy neighbour”. It doesn’t work. When will journalists stop pandering and call a spade a spade?
Quantitative Easing – why?
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