Total Posts:3|Showing Posts:1-3
Jump to topic:

Finance/Econ Question

ConservativeLibertarian
Posts: 54
Add as Friend
Challenge to a Debate
Send a Message
7/3/2014 5:21:35 PM
Posted: 2 years ago
I was reading an article on monetary policy and need help in deciphering this short piece talking about the difference between QE and credit easing:

"..[P]ure QE involves purchasing government assets, while credit easing involves buying or lending against private-sector assets (commercial paper, agency debt and agency MBS, money market fund backstops)."

The article can be found here: http://ftalphaville.ft.com...

Can someone explain what it means to "buy or lend against private-sector assets?"

Thanks.
twocupcakes
Posts: 2,764
Add as Friend
Challenge to a Debate
Send a Message
7/3/2014 7:35:35 PM
Posted: 2 years ago
At 7/3/2014 5:21:35 PM, ConservativeLibertarian wrote:
I was reading an article on monetary policy and need help in deciphering this short piece talking about the difference between QE and credit easing:

"..[P]ure QE involves purchasing government assets, while credit easing involves buying or lending against private-sector assets (commercial paper, agency debt and agency MBS, money market fund backstops)."

The article can be found here: http://ftalphaville.ft.com...

Can someone explain what it means to "buy or lend against private-sector assets?"

Thanks.

When the Central Bank increases the money supply, they do it by buying bonds from banks. So if the central bank increases the MS by $100, they would have given the banks $100 in exchange for bonds.

Usually the CB buys government bonds. This statement is saying that credit easing is when the CB increases the MS by purchasing a private sector asset (something not government bonds)

I hope that makes sense
DanT
Posts: 5,693
Add as Friend
Challenge to a Debate
Send a Message
7/6/2014 3:03:08 AM
Posted: 2 years ago
At 7/3/2014 5:21:35 PM, ConservativeLibertarian wrote:
I was reading an article on monetary policy and need help in deciphering this short piece talking about the difference between QE and credit easing:

"..[P]ure QE involves purchasing government assets, while credit easing involves buying or lending against private-sector assets (commercial paper, agency debt and agency MBS, money market fund backstops)."

The article can be found here: http://ftalphaville.ft.com...

Can someone explain what it means to "buy or lend against private-sector assets?"

Thanks.

First let me point out what the monetary supply is; the monetary supply consists of all Cash (coins and bank notes) + all deposits in commercial banks (such as checking accounts). The Monetary Supply should not be confused with the Monetary Base, which consists of all Cash (coins and bank notes) + all reserves (deposits within the central bank by commercial banks). The monetary supply = the monetary base x the money multiplier.

Quantitative easing is when the FED purchases Government Bonds (aka government assets) from commercial banks, thereby increasing Excess Reserves. By law, commercial banks can only hold x amount of deposits per reserves, so by increasing excess reserves, banks are able to hold more deposits. More deposits means a greater supply of money.

Credit easing is when the FED purchases Private Sector Bonds (aka Private assets) from commercial banks, thereby producing the same effect on excess reserves, and in turn the monetary supply.
"Chemical weapons are no different than any other types of weapons."~Lordknukle