[uNkNowN ElEmEnt]

"Once the price of money gets close to zero, what the Federal Reserve and other central banks can do is they embark on what's called quantitative easing, which is the provision of unlimited amounts of liquidity to the system to ensure the smooth operation of the economy," said Patricia Croft, chief economist at RBC Global Asset Management.

Federal Reserve Board chair Ben Bernanke said this week further cuts in the overnight rate are "certainly feasible," but hinted the central bank could use unorthodox methods to rev up the economy.

One option is to try to influence longer-term interest rates, a possibility Bernanke has raised.

Is this just their way of saying (in the first paragraph) that the printing press will run 24/7?

from here

Under normal circumstances, such massive injections of liquidity would carry the risk of inflation. But inflation isn't a fear right now because banks are holding on to their money, Croft said.

Does this seem odd? What does inflation have to do with banks holding on to their money? cause they aren't letting all the liquidity the government has just printed off out into the general economy?

Some economists caution deflation is becoming a real possibility as economies around the world contract. Deflation, a persistent, general decline in prices that can cause consumers to delay purchases in the hopes of prices going even lower, can prompt businesses to cut production and lay off staff, making demand fall even further.

So if central banks adopt near-zero rates, could that translate into lower interest rates for businesses and consumers?

"There's no guarantee that these interest rates move in lockstep,'' Smith warned. ``It depends on other parts of the financial system, whether banks are in a position to expand credit and lower their interest rates or not."

Well, if it isn't passed on to businesses and the consumer what the hell is the point? it wouldn't stimulate the economy if they don't...and isn't that the whole point in decreasing or dropping rates?

[Tyler_JC]

Well, if it isn't passed on to businesses and the consumer what the hell is the point? it wouldn't stimulate the economy if they don't...and isn't that the whole point in decreasing or dropping rates?

If they don't print the money and lend it to the banks at 0% interest, the banks will be even LESS able to lend it out to consumers and businesses.

That's the point.

[Ayame]

Yes it was confimed in the Daily Mail in a section for financial dummies.


quantitative easing = printing money


It will begin once interest rates hit zero.


Then hello hyperinflation.

[ReverseEngineer]

Under normal circumstances, such massive injections of liquidity would carry the risk of inflation. But inflation isn't a fear right now because banks are holding on to their money, Croft said.

This is not true at all. Banks are not holding onto the funny money being passed to them, they are using it to deleverage. In other words, pay off their own debts. It would only show up in the economy once those assets were sold again, but since most of the debts are in residential and commercial mortgages which aren't selling, the money is disappearing into a black hole. It does keep these banks solvent though.

It would only be after the deleveraging process was finished that banks might start to take the gobs of money being thrown at them and try to loan it out to people to buy the foreclosed homes and shopping malls. However, since most folks by that time will be unemployed, they won't be very good credit risks.

The only way I can see that hyperinflation takes place is when the money gets directly distributed out to the consumer. This can happen either thru more extensive Stimulus or thru Make Work projects. As long as the Funny Money is just being used to pay off the debts of the banks, it won't make its way out into the general economy. They have too much debt, much of which isn't even known yet in the CDS market.

The main problem with the naked printing comes from dollar devaluation on the debt of the foreign banks. The more that gets printed, the less their dollar holdings are worth. This makes them insolvent. It will take a while to play out.

Reverse Engineer