If you have been listening to the news recently you have heard a lot of talk about QE3. So what is QE3 and why does it cause such a ruckus?
Some technical background…
QE stands for Quantitative Easing so QE3 stands for round #3 of QE, hence QE3. What is Quantitative Easing? According to wikipedia, Quantitative Easing is “an unconventional monetary policy used by central banks to stimulate the national economy”. Some people say that Quantitative Easing is like the government “printing money” but basically it is an action that the government does to pump money into the economy in hopes to boost the economy.
How has the government done this…The Band-Aids
QE1 was implemented at the cost of $700 billion (although some reports would say over $1 Trillion was the actual cost) in the basic form of the Wall Street bailout in 2008. The government bought troubled mortgages and helped the big automobile manufacturers. Do you remember TARP?
QE2 took place in the last quarter of 2010 when the government purchased $600 billion in long-term U.S. Treasury bonds. This essentially pushed down long term interest rates.
In July Ben Bernanke (the chairman of the Federal Reserve) said that a third round (QE3) could be necessary if the economy didn’t get some momentum in the second half of the year. No one knows exactly what QE3 will entail but everyone would agree that it will have some impact on the economy, good or bad…we just don’t know.