photography www.doitinvest.com possible rising of the us economy
One of the latest causes of the Euro spiking up above 1.42 versus the USD was the quantitative easing policies applied by FED. If you are not familliar with the term, here’s the definition:
Quantitative easing represents the injection of money from a central bank into the economy, via the banking system. It works like this:
1st stage: the Central Bank tries to push the economy by lowering interest rates, which should encourage lending and therefore the consumption. In our case, FED interest rates are already at 0% and publishing negative interest rates would be a bit Japanese, meaning strange (what would it mean to put your monry on the bank and get less at the end of the deposit?!)
2nd stage: Central Bank pushes up the public expenditure, in the hope that money spent like this will push up consumption and persuade firms to invest. In US this is impossible too – because the public debt is huge.
3rd stage: Here comes in the big invention of the US policymakers: quantitative easing. Ladies and Gentlemen, here comes in the new fantastic method for stimulating the economy, absolute premiere: quatitative easing!
…which is not so new, since it involves printing virtual money and lending them to the banks at no cost, in the hope they will be lent to the economy players who in turn will start to run as mice and make money for the mighty US economy.
There is a big problem with printing money and giving them to the banks: the banks will try to keep them as much as possible…for themselves, or will try to make more money on those money. This means that there arethe so-called “friction costs”, meaning that the rich banks will get richer, whilst the rest of the actors will get higher debts.
We can also talk about the specter of the inflation looming around – but who care about what will happen in 6 months?
I don’t know where this short termism will lead, I am very curious