Quantitative easing is an unconventional monetary policy used by governments to stimulate the economy when they have run out of ideas of what to do. In the past, Japan has used it and after seeing the results, deemed it as an ineffective policy. However, today many governments are using the this policy to stimulate their economy. Does it make any sense? Perhap they have some additional policies to back it up.
Why would quantitative easing be bad for the economy? Firstly, we have understand that the policy is effectively printing money and adding it to the system. However, it is not a direct infusion of money to the system but by buying back financial assets from banks and other private sector businesses.
This would devalue the currency of the country. Because there is more supply than before and it will not add value, instead it will make every unit of currency less valuable, hence able to buy less than before. This will effectively be inflation and it would hit the consumers harder than before. This is because a lot of people have already lost value in the 2008 crash and are barely making ends meet, some even jobless.
The extra money will once again cause new bubbles (like the housing bubble) to be created. And the governments that use this policy would make it more expensive for them to borrow in the future as their currency is not as desirable as before.
So the big question is whether the biggest economy America would suffer the same consequence as Japan by using this policy?
