Tuesday, December 23, 2008

This and That

In practice, the term "printing money" is often used as shorthand for what economists call quantitative easing. Typically, major monetary-policy decisions by the Fed are made by setting a target for the federal funds rate—the interest rate at which banks lend to other banks—and then buying or selling government securities to achieve that goal. But as the targeted federal funds rate nears zero—it currently stands at 1 percent—the Fed may be forced to look for other options to fight off possible deflation. (Japan has found itself facing similar problems in recent years.) Quantitative easing is an attempt to increase the money supply by buying more and more assets from banks without regard to an interest-rate target. The Fed doesn't need to print more currency to do that; it can simply happen electronically, as the banks are credited with more money in the accounts they keep with the Federal Reserve. The Fed can do this as much as it wants, but it could face two potential problems. For one, it's possible that those reserve accounts will keep growing without stimulating any economic activity. Alternatively, the Fed could increase the money supply by too much, resulting in inflation.
What it means for the Fed to start "printing money"

Ben Bernanke on deflation + Achka's recommended video: Ben Bernanke at Princeton

How Do You Inject Money Into the Economy?

Should We Be Scared of Deflation?

Krugman on deflation of Japan

Federal Reserve FAQ

Current album: Nada Surf - The Weight is a Gift
Current book: William Safire - Lend Me Your Ears: Great Speeches in History, Updated and Expanded Edition

1 comments:

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