Money 101: Quantitative Easing and Tightening
We hear these discussed quite often. However, did you know they are actually the opposite of what the central banks propose?
In this video I cover these concepts and how backwards they are. Like many things with money, we are mislead (intentionally for the most part in my view) so we do not truly understand what is going on. This is especially true when it comes to the central banks.
▶️ 3Speak
0
0
0.000
This is an interesting discussion. I honestly don't quite understand these well, so this was very educational. I really think we need more financial related information in schools to better educate people.
👍 !PGM
#hive
https://twitter.com/MunirTahir67705/status/1788523336571535422
On seeing this post and watching the video now, I made a great exhale because I have been longing to hear about this, especially the misleading part which central banks do take part in.
I really appreciate your time, efforts and ability to put together this video, keep the good work on @taskmaster4450
Hello taskmaster4450!
It's nice to let you know that your article will take 9th place.
Your post is among 15 Best articles voted 7 days ago by the @hive-lu | King Lucoin Curator by blind-spot
You receive 🎖 0.3 unique LUBEST tokens as a reward. You can support Lu world and your curator, then he and you will receive 10x more of the winning token. There is a buyout offer waiting for him on the stock exchange. All you need to do is reblog Daily Report 294 with your winnings.
Buy Lu on the Hive-Engine exchange | World of Lu created by szejq
STOPor to resume write a wordSTARTSummary:
In this episode, the host provides a detailed explanation of the mechanics behind quantitative easing (QE) and quantitative tightening (QT), and how they are often misunderstood by the public. The key points are:
Quantitative easing is often portrayed as the central bank adding liquidity to the system, but this is not entirely accurate. During QE, the central bank (e.g. the Fed) swaps bonds held by banks for reserves, which are not the same as cash or legal tender.
The reserves added to the banks' balance sheets during QE cannot be used in the same way as the bonds, as they cannot be used as collateral in the repo market. This effectively tightens liquidity rather than easing it.
Conversely, quantitative tightening, where the central bank sells bonds back to the banks, is actually a form of easing, as it returns assets that can be used as collateral.
The host argues that the Fed's monetary policy is more about propaganda and influencing market expectations rather than directly controlling the money supply. The markets often move ahead of the Fed's actual policy changes.
Overall, the host emphasizes the importance of looking at balance sheets and accounting to understand the true effects of the central bank's actions, rather than relying on the commonly held narratives.
Detailed Analysis:
The host begins by stating that the common understanding of quantitative easing and quantitative tightening is often backwards. He explains that during QE, the central bank (using the Fed as an example) goes to a bank, such as Wells Fargo, and purchases their 10-year bonds, replacing them with reserves on the bank's balance sheet.
This process, the host argues, does not actually add liquidity to the system. While the bank now has reserves, these reserves cannot be used in the same way as the bonds, as they cannot be used as collateral in the repo market. The host provides an example of how the bank in Ecuador could have used the 10-year bonds to get a better interest rate on a deal, but cannot do the same with the reserves.
The host then explains that during quantitative tightening, the central bank is actually easing, as it is returning assets to the banks that can be used as collateral, rather than taking them away.
The host also discusses the role of the central bank's communication and how it influences market expectations, even if the actual policy changes lag behind. He argues that 98% of what the Fed accomplishes is through market manipulation and propaganda, rather than direct control of the money supply.
Throughout the discussion, the host emphasizes the importance of looking at balance sheets and accounting to understand the true effects of the central bank's actions, rather than relying on the commonly held narratives. He argues that the reserves created by the central bank do not directly enter the broader economy, and that the impact is felt more in the offshore dollar system and the Eurodollar system.
Overall, the host provides a detailed and insightful analysis of the mechanics behind quantitative easing and quantitative tightening, challenging the conventional wisdom and urging the audience to look beyond the surface-level narratives.