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Originally Posted by whell
They've been doing that FOR YEARS now - that what "quantitative easing" was all about" - and that's what has held down interest rates and was one of the primary drivers of the stock run up under Obama. The US Treasury sold trillions of dollars of bonds each year to paper over the US government deficit. The Federal Reserve printed trillions in extra money to buy these government bonds.
QE was fine in some respects. It certainly allowed the gov't to finance debt at lower rates. The negative side of that, of course, is that it lowered the pain of borrowing and did little to curb the appetite to spend. It allowed people to refinance homes at great rates and helped financial institutions earn an outsized profits without taking much risk (I'm sure the Dem's Wall Street donors were pleased about this.)
On the other hand, while big banks were making big money due to lower rates, they didn't made loans more easily accessible to people and companies.
All that talk about financial disaster that helped the Fed sell the idea of QE probably made banks more conservative when it came to loans. They also had the increased oversight of Dodd Frank to make them more risk averse.
But the other big thing that QE accomplished: it has made the stock market soar. Interest rates have remained so low for so long that investors have had no other choice but to move their money into the stock market. Now that rates are edging up, its letting some air out of the bubble.
This wasn't difficult to foresee. It does create an opportunity for the Dems to make some political hay, however. Nothing new there either.
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In other words we have just been printing phony money and having a ball while the outside world helps subsidize the party.