Talk:Quantitative easing

open market operations vs. quantitative easing

so what's the difference? from this article i don't see any.

New introduction

I think the use of 'thin air' is rather subjective and offers quite a biased view on what quantitative easing actually is. This should be re-written or returned to the original 'is a tool of monetary policy.' which was much more neutral. -- (A.szczep) 08:48, 20 February 2009 (UTC)

Why is it biased? And it's certainly not subjective. It's an objective description of the process. Just saying something is a 'tool' doesn't describe where the new money comes from. People ask where new money comes from? It's created out of thin air. fact. 'thin air' is a common enough phrase and it's use here is appropriate. Vexorg (talk) 21:41, 21 February 2009 (UTC)

The term "thin air" is absolutely accurate. The federal government creates all its money out of thin air, backed only by full faith and credit. The problem with quantitative easing is not that it might cause inflation or hyper-inflation, but rather that it does almost nothing. Banks exchange Treasury securities for dollars. Dollars are demand deposits at the Fed. T-securities are time deposits at the Fed. So a time deposit has been exchanged for a demand deposit. Not much excitement there. Anyone wishing to discuss this further can reach me, Rodger Malcolm Mitchell, at rmmadvertising@yahoo.com

"A central bank can do this by buying government bonds" - how ?

The above sentence appears in the main article. I would like to ask, what does the central bank use to buy these bonds? If it uses money it already has, then where is the 'quantitative easing' ? If it is creating 'new' money, what does the double entry book-keeping look like: Debit Investments, Credit Money from thin air ? This article is very important, since it refers directly to what looks like being a major plank of G20 government policy. At the moment I echo the comments below from Ashley Pomeroy. The crucial issue that everybody wants to know is 'how is new money made'? Someone who knows the nuts and bolts of central bank bookkeeping should just show the T-account entries.

Perhaps a better metaphor (that I like) is: "A snake eating it's own tail, to temporarily sustain itself!"

Most new money is made out of thin air by [|Fractional Reserve Banking] (deposit multiplication ). The Federal Reserve booklet Modern Money Mechanics explains how this works. Vexorg (talk) 05:50, 19 February 2009 (UTC)

btw - here's a link I found to a pdf version of Modern Money Mechanics http://www.smeggys.co.uk/smeggy_info/Modern_Money_Mechanics.pdf Vexorg (talk) 02:08, 3 March 2009 (UTC)

"Out of thin air" has to be one of the worst metaphors used in this article and should be struck in all cases. The colloquial "out of thin air" refers to a very basic concept in economics but doesn't accurately depict the importance of that concept - the concept is value. When an asset appreciates in value (a.k.a. price), does the marginal increase in value appear "out of thin air"? When two accounting firms disagree over the valuation of an asset to be disclosed in a public report, is that discrepancy appearing "out of thin air"? Unfortunately, the phrase "out of thin air" implies some impropriety from the producer - such as, pulling your story "out of thin air," or a magician pulling a flower "out of thin air." Let me suggest that you avoid nonsensical metaphors and colliquial language in exchange for cautionary statements that accurately describe the discipline's limitations, such as value is slippery concept, which economics has come to define as a function of supply and demand - assuming, of course, a rational actor seeking to maximize their wealth. Vexorg - the very pamphlet you cite describes money as a medium of exchange commonly accepted and, therefore, could be baseball cards, jewels, or printed dollars.Cpuga001 (talk) 18:16, 27 June 2009 (UTC)

You're worried about the impropriety of the metaphor "out of thin air" being used in an article whose very title, "Quantitative easing", is itself a euphemism for inflation (of the money supply, of course)? That's rich.—Blanchette (talk) 03:20, 18 August 2009 (UTC)

To Blanchette: "Quantitative easing" is not a euphemism, it is technical term for a particular type of monetary policy. Unfortunately, interference from people who do not understand it has prevented the article from correctly defining it. Yes, the QE policy is a kind of monetary inflation, but so are some other policies which are not QE. JRSpriggs (talk) 07:16, 18 August 2009 (UTC)

But what is it?

I have read the article three times, the third time whilst eating some cereal. In its current form, the article does not actually say what quantitive easing is; or if it does, it is not clear. -Ashley Pomeroy (talk) 23:08, 5 December 2008 (UTC)

Ashley, what do you find unclear?

Quantitative easing is a tool of monetary policy. It effectively means that the central bank injects new money into the financial system, in order to increase the supply of money... Is this not clear enough? Janosabel (talk) 20:38, 25 January 2009 (UTC)

My Dear Ashley: "Quantitative Easing" is Newspeak for "increasing the money supply by simply 'printing' more of it, either literally or electronically; inflating the currency by fiat". Writtenright (talk) 02:23, 8 March 2009 (UTC)Writtenright

On the subject of "What is it?", can anyone include an outline of the provenance of the term "Quantitative Easing". It seems to be a new term since I can't find any references to "Quantitative Easing" prior to autumn 2008, when there is an explosion in instances. It would be helpful because, presumably, it would shed light on how the practice is distinct from historical policies of printing money or Open Market Operations. 94.169.132.184 (talk) 19:03, 8 March 2009 (UTC)

A good analogy to help the layman understand "Quantitative Easing" is the common practice of using one credit card to pay off the debt on another credit card, postponing the day of reckoning. Government buying it's own debt. —Preceding unsigned comment added by 88.106.172.215 (talk) 10:35, 24 May 2009 (UTC)

Need to define "New Money"

Someone pleas write the entry on New Money, that is, money created in addition to total quantity of notes and coins plus the current debt burden carried by individuals households and businesses. I have contributed an introductory entry before but it got "speedily deleted". Now an economic illiterate is diverting the link to Nouveau riche. -- Janosabel (talk) 23:27, 8 February 2009 (UTC)

I've rewritten the intro to get rid of the irrelevant Nouveau riche link. The central bank buys bonds by simply crediting the account of the agents account. These new deposits allow the private bank to increase it's lending, ergo increasing the money supply. The federal reserve's document Modern Money Mechanics explains it all. Ther ereally needs to be a Wikipedia article on the Modern Money Mechanics publication. Vexorg (talk) 06:03, 19 February 2009 (UTC)

QE in the setting of interest rates

This could be expanded: "The BOJ accomplished this by buying more government bonds than would be required to set the interest rate to zero." How does the interest rate go to zero exactly? And is this a reference to long-term interest rates ('bond yields') since short term rates are set directly by central banks themselves?

Thanks 11:17, 05 March 2009 (UTC) —Preceding unsigned comment added by 92.2.86.124 (talk)

My question is similar: how does buying government bonds cause their interest rate to change, as is implied by the statement that buying a certain number of bonds would set the interest rate to zero? rspεεr (talk) 05:36, 9 March 2009 (UTC)

The price of of a bond is inverse to its yield (Finance 101). Hence if you buy lots of bonds (ie increase demand) the Price goes up (Economics 101) and hence the interest rate goes down. Thus, if you buy enough bonds, then you can theoretically push the interest rate to zero. Suicup (talk) 11:53, 10 March 2009 (UTC)

dead link

• Forum for Stable Currencies --Alex1011 (talk) 21:50, 25 January 2009 (UTC)

Link OK now-- Janosabel (talk) 22:13, 8 February 2009 (UTC)

printing money

sometimes quantitative easing is known as "printing money", although of course paper currency that is a promissory note to gold or whatever still has to be printed. Printing money currently redirects to fiat currency. i've linked fiat currency in the see also section, as that is a prerequisite for quantitative easing, but some inclusion of the phrase "printing money" might be useful.--Mongreilf (talk) 12:27, 8 March 2009 (UTC)

I agree. I read this article and asked myself "Isn't this just a fancy euphemism for 'printing money'? And why doesn't the article say so if it is?" rspεεr (talk) 05:34, 9 March 2009 (UTC)

The article does explain in the first paragraph that it's essentially creating money out of 'thin air' (whether that is printed or an electronic account adjustment) - I've had to fight off a couple of editors who seem to want to avoid disclosing this basic fact though. Vexorg (talk) 19:47, 9 March 2009 (UTC)

I explain below that you must understand the term "printing money" in the context of government policy goals, not just the Fed's mission.Edsdet (talk) 02:23, 22 September 2009 (UTC)

Indeed I propose that the article be added to Category:Euphemisms. __meco (talk) 20:47, 9 March 2009 (UTC)

Text removed related to hyperinflation

I had added the following text after the introduction:

Quantitative easing is a prerequisite for hyperinflation, which will be a later stage in a deteriorating economic crisis when stabilization of the currency is unsuccessful and confidence in the authorities' measures continually declines.

This was removed by another editor calling it POV. If anyone will bother to find sources supporting this observation it should be harder to removed this obvious link from the article. Presently the article makes no mention at all of hyperinflation. __meco (talk) 07:57, 9 March 2009 (UTC)

The way that was written can be misconstrued as a possible inevitability of Quantitative easingw hich obviosuly is not necessarily the case. I think the article would be better served by introducing a section on the pros and cons of Quantitative easing of which hyperinflation can be one of the cons. Vexorg (talk) 19:44, 9 March 2009 (UTC)

I accede that perspective, however, not having any mention of it in relation to hyperinflation appears to me a blatant omission. __meco (talk) 20:48, 9 March 2009 (UTC)

This is exactly my point. There needs to be a proper section on the pros and cons of QE and not something that can misconstrued as an inevitable conclusion of it. Vexorg (talk) 21:02, 9 March 2009 (UTC)

Even in my "Conspiracy Theorist" mind the term hyperinflation is an emotive ill defined word, generally used as propaganda against failing governments. A reference to inflation is needed, along with the concept that inflation is another form of hidden taxation, because of the private banks creating and lending money to the government (at interest). This system is a complex monster, that defies logic to any sane person! —Preceding unsigned comment added by 88.106.172.215 (talk) 11:00, 24 May 2009 (UTC)

Missing the whole point

To Meco (talk · contribs) and Vexorg (talk · contribs): You two are missing the whole point of the phrase "quantitative easing". It is a kind of monetary policy where open market operations are used to increase the money supply by a pre-determined quantity. Your definition "the creation of new money 'out of thin air' by a central bank for injection into the banking system in an attempt to increase the money supply" contains several errors: (1) It is not sufficiently specific, your definition (if the wording were corrected) would apply to any open market operations. Thus you are leaving out the entire reason why this new phrase was created. (2) Central banks do not create money "out of thin air" (nothing). The central bank buys securities which are used as collateral for the new money. If it is necessary to withdraw the money to stop inflation, then the securities can be sold to get the money back. (3) There is no "attempt" about it. Money is definitely created. JRSpriggs (talk) 09:44, 10 March 2009 (UTC)

I agree with JRSpriggs. The 'out of thin air' definition is sloppy, incorrect and possibly bordering on POV. The definition given by JRSpriggs is far superior on each of these levels, which is why I have edited the intro to reflect this. To the other users, if you disagree, don't revert back, it will just create an edit war - discuss here first. Suicup (talk) 12:00, 10 March 2009 (UTC)

Please don't order people not to revert so you can claim priority Vexorg (talk) 19:31, 10 March 2009 (UTC)

I am not 'ordering,' just suggesting that the best way to resolve disagreements is to discuss them here first rather than edit back and forth. I suppose now that the phrase is referenced there is no need for it to be deleted, however I still think 'out of thin air' is too casual for an encyclopaedia article of this nature - ie a reasonably technical topic in economics.Suicup (talk) 05:30, 11 March 2009 (UTC)

JRSpriggs, the money used to buy the securities is, however, newly created "out of thin air" by the central bank. from the article on open market operations: "Newly created money is used by the central bank to buy in the open market a financial asset, such as government bonds, foreign currency, or gold." the italics are mine. that the central banks retain the ability to later disappear the money back into thin air doesn't mean it wasn't created out of thin air in the first place, but it does thankfully mean they maintain monetary control.

the "thin air" is basically a slightly POV way of saying that while money is created (as you admit) wealth isn't, and an unawareness that this happens all the time and is the basis of money.--Mongreilf (talk) 18:31, 10 March 2009 (UTC)

There's nothing POV about 'thin air'. Just because the newly created money is used to buy securities it was still created out of 'thin air'. I agree the previous wording of 'attempt' is wrong and I've also left in the referral to Open Market Operations in the opening paragraph, but the reader needs to know the basic facts and that is the money is created out of 'thin air'. I do understand why some want to avoid educating people about this. Vexorg (talk) 19:31, 10 March 2009 (UTC)

Edit: I've added a source ref for the term 'thin air' Vexorg (talk) 19:45, 10 March 2009 (UTC)

The phrase "out of thin air" does not tell the reader anything truthful which is not already implied by the word "create". It is true that creating money does not create wealth. But buying a corporate bond or share of stock to be collateral for the new money is not fundamentally different from buying an ingot of gold. In either case, non-monetary wealth passes from private ownership to the ownership of the central bank; and money (which is more liquid) passes from the central bank to the private owner. And the process is reversible.

The problem of depreciation and the resulting inflation is not primarily caused by central banks (unless they are corrupt). It is caused by the government spending too much and financing its spending with borrowed money. Then it forces the central bank to monetize that debt (which is not wealth) instead of monetizing real wealth. JRSpriggs (talk) 03:31, 11 March 2009 (UTC)

You seem to have a problem with the phrase 'thin air' - The word 'create' does not fully describe the process. 'Create' can mean creating 'something' out of 'something' as well as 'something' out of 'nothing'. This is why it's important to let people know that money is literally created out of 'thin air'. It's bad enough that this information is not both readily available and easily explained, so let's at least use the opportunity of Wikipedia to show people the truth. We have to spell it out in simple and truthful terms and not the usual euphemisms if lay people are going to understand. Further, I know the process is reversible and I think it's important to educate people on that. But as far as I know there isn't a notable term called something like 'Quantitative tightening' - Anyway the buying and selling of securities as a forward and reverse method of controlling the money supply should be under Open Market operations. Quantitative Easing is a one way process designed to seed an increase to the money supply. Please remember these articles are meant to educate laymen, not people who already know how it works. Vexorg (talk) 08:33, 11 March 2009 (UTC)

The problem with "out of thin air" is that it has no clear meaning. What would you consider to be creating something which is not out of thin air?

When a corporation creates new shares of its stock or new bonds and sells them, are they created out of thin air in your view?

I agree that I have not heard of "quantitative tightening". I suspect that by the time that a central bank has decided to tighten at all, it is ready to do so by returning to an interest rate target above zero (or an inflation target or whatever other form of monetary policy it used to use). JRSpriggs (talk) 16:57, 11 March 2009 (UTC)

'Thin air' couldn't be more clearer. Most people normally assume that money has always been in existence and is simply passed around through transactions. An example of the dreadful education has just been on the BBC TV news in the lat few minutes. A brief report on quantitative easing where it was briefly explained that "the Bank Of England has bought government bonds" - no explanation of where the money has come from to purchase these bonds. it hasn't come from anywhere. It's created from 'thin air' by someone typing a number into a computer to increase the balance on someone else's account. That's why the BBC's website article, which goes into more detail says it's created from 'thin air'. How else would you explain it? Created from 'nothing' perhaps? 'Thin air' is a universally known phrase in the English language and is more eloquent than 'nothing'.

Regarding 'creating something from something' - In regards to money I guess this would apply to the usage of a physical commodity for money, for example gold. This way the only way to expand the amount of money in existence would be to mine more gold. But there's no doubt not enough gold in existence to supply the demands of an expanding economy. There's enough grains of sand. But of course if we used grains of sand as money hyperinflation would soon kick in as people came back from the beach with truckloads. :) - better then to have money as a virtual entity ( fiat money) which can be created and destroyed by those authorized so that the amount in existence can be regulated to avoid under or over supply. On a related note .... What is a problem is that private banks have the real control over the money supply as they create most of it through deposit multiplication under the fractional reserve system. But that's for another debate I guess. :) Vexorg (talk) 22:36, 11 March 2009 (UTC)

"Printing money out of thin air", is a good start at explaining our very much empirical economic system. Most people (especially those in the banking system) have little understanding about the tangled mess, as was observed by all those in charge, "not seeing" this coming crisis. It was only the Austrian Economist who have been warning us! The idea of printing money, and then ripping it up (IOU's) is pretty easy for even a child to comprehend. —Preceding unsigned comment added by 88.106.172.215 (talk) 11:18, 24 May 2009 (UTC)

A new Definition

I agree with the above comment that the reporting of QE is very poor. I also think that the term "thin air" is fine in this context. It is precisely where the money to buy the bonds comes from. However, just like a loan, where everyone concentrates on receiving the money to spend BUT forgets about having to pay it back, so the discussion on QE. We forget the rest of the story. The full story is below.

QE can be defined as a process as follows

1. central bank creates money out of "thin air"

2. central bank uses the money to buy bonds (long term it seems)

then much later when things are "eased"

3. central bank sells the bonds (or waits for maturity)

4. central bank destroys the proceeds of the bonds (returning the money safely to the "thin air" from whence it came)

The latter two steps are always missed out in explanation and are precisely what prevents "wheelbarrow" inflation. step 1 is the "money printing press". step 4 is the "money shredder". The entire process is money quantity neutral. Engineers must obey conservation laws of physics. Economists need to obey similar laws of conservation (money in this case). What is going on here, if the process is fully followed, is that money is borrowed from the future and paid back in future. This in exchange for bonds (that are removed today and returned in future). I really feel it would be very helpful if Politicians, Central Bankers, Commentators, etc would remember the latter steps when talking of QE. This would help to not scare the population with visions of "wheelbarrows". Currently commentators seem to provide a very scary partial story. The interesting thing here is that, whereas banks have central banks as "lenders of last resort", Central banks have "thin air" as the "central bank"'s "lender of last resort" - Ie the "central bank"'s central bank.

Clearly things can go wrong in the above - eg buying bonds at a higher price than selling them.

I hope my understanding is correct here (otherwise I need to convert my savings/pension to a safe currency). If I am correct, may I suggest the above definition.

mereEngineer —Preceding unsigned comment added by MereEngineer (talk • contribs) 23:10, 11 March 2009 (UTC)

mereEngineer, a very good commentary!. However we have to define some boundaries on this article. Although your steps above are excellently succinct in summing things up we might be in danger of expanding the article beyond what quantitative easing. On the other hand it's important to explain the broader scope of where QE is placed. e.g it's good to explain that the excess reserves created by QE allow the increase in the money supply by deposit multiplication, because really QE is a seed for further money creation. But where do we stop?

Someone above made a valid point about clarifying the difference between QE and the normal procedure of Open Market operations as a method to control the money supply by altering bank's reserves. I personally think we can allow some crossover and expand the article. Problems can occur with Wikipedia whereby an explanation of a process is handicapped by having the overall situation split across several articles. i.e Quantitative Easing, Fractional Reserve Banking, Bonds, Fiat Money, Open Market Operations, Money Creation, etc, etc. The article on Money creation and Fractional Reserve Banking in particular need improving to tie in with this article and also to improve clarity. Vexorg (talk) 07:22, 12 March 2009 (UTC)

Thanks for your comments Vexorg.

May I suggest the following alternative defintion to replace para 1

<START OF PROPOSED TEXT>

The term "quantitative easing" refers to the process by which a central bank increases the money supply for a limited period of time. QE is used when more conventional mechanisms for increasing the money supply (eg lowering interest rates) have failed or have reached their limit (zero). The period of time may be a number of years. The process of QE involves the following steps

1. central bank creates money from "thin air"

2. central bank buys (usually long term) bonds

3. central bank monitors and waits for the easing effects to be successfull. (see below)

4. central bank sells the bonds.

5. central bank destroys the monew it originally created (returns it to "thin air")

Notes on definition

1. QE is used in circumstances where conventional mechanisms have failed. These circumstances are where commercial banks have ceased to lend, often because of bad debts and poor reserve ratios. These conditions generally lead to deflation.

2. step 3 above is deemed to be succesful when lending has resumed again and the economy has returned to health.

3. step 4 and 5 are essential to prevent inflation. They terminate the period of increased money supply by destroying the money originally created.

4. QE is analogous to "printing money" for a period of time then "shredding money". Shredding money is essential to avoid inflation.

<END OF PROPOSED TEXT>

I have taken the view that QE is the entire process. One could argue QE only means steps 1 an 2. If so, what is the existing term for the opposite (steps 3 and 4). Is it "quantitative Squeezing"?

If its thought that QE only applies to steps 1 and 2, then its important that QE and its opposite are defined together as part of one process.

MereEngineer —Preceding unsigned comment added by MereEngineer (talk • contribs) 14:07, 12 March 2009 (UTC)

I notice from the above that there does not appear to be a term for "quantitative tightening"/"quantitative squeezing". Feel free to correct me. This is very worrying. Its like having a term for borrowing without a term for "paying back". If so it suggests that experts have thought about the easing bit without thinking about the tightening bit. I hope that I am wrong here. in any case any definition of one should include the other. Otherwise its like defining a positive electrode without defining a negative electrode. —Preceding unsigned comment added by MereEngineer (talk • contribs) 15:17, 12 March 2009 (UTC)

I think you've kinda of answered your own question about involving the reverse process in the opening section of the article. Personally I would avoid putting your steps 4 and 5 in as an essential to avoid inflation. Becuase .... If the economy expands to accommodate the extra money created by QE then there's no need to remove this money by 'quantative tightening' - With that in mind would it not be better to include mention of the reverse process in a section dedicated to the possible caveats of QE? Vexorg (talk) 18:58, 12 March 2009 (UTC)

Re-organisation

Because the article was getting increasingly messy I've reorganised the first few sections to increase clarity in quantitative easing's meaning and place in the process of increasing the money supply Vexorg (talk) 21:18, 10 March 2009 (UTC)

Thanks -- I find this clearer than what was there before. It would be good to organize it into sections again, however. rspεεr (talk) 06:39, 11 March 2009 (UTC)

Yes I agree that sections would help further. At the least we need sections describing the pros and cons of Quantitative easing. Vexorg (talk) 08:18, 11 March 2009 (UTC)

I can't believe how condescending this article is

This article uses unnecessary jargon alternating with contentless "simple" explanations for two-thirds of a page. Finally, when it provides a complete and jargonless description of the process, it prefaces it with the assertion that it is using

very simple layman's terms,

Do you see how very simple is in italics?? That is seriously some rude, obnoxious text. And it's not like this is a complicated process. The only obstruction to understanding is a glut of ridiculous jargon.

The place for a very simple explanation is at the beginning, and the phrase very simple should be removed. Furthermore, consider that explanation:

the central bank creates new money out of thin air. It then uses this money to buy what is essentially an IOU, usually from the government. This money is credited to the bank account of the seller of the IOU. The bank can then use this money as a basis for creating more new money by increased lending.

Even that is more complicated than necessary. I propose the following very simple explanation as an alternative.

Esssentially, the central bank creates money 'out of thin air.' It then loans this money to other institutions, such as governments and private banks, by purchasing securities or other debt instruments.

128.91.128.143 (talk) 14:00, 20 March 2009 (UTC)

I think the article should provide both a simple explanation and go into the details. The monye isn't loaned to private banks anyway, it's used to increase their deposits to allow them excess reserves. Vexorg (talk) 22:11, 24 March 2009 (UTC)

Lead

I've restored the lead (again). The edits by JRSpriggs do not remove inaccurate statements and actually make clarity worse as they remove the explanation of where the new money actually originates from. i.e thin air. The use of the phrase ex nihilo is unnecessary dressing up with pretentious jargon Vexorg (talk) 17:59, 22 April 2009 (UTC)

I've clarified the intro even further. Vexorg (talk) 18:32, 22 April 2009 (UTC)

I've merged the additions by JRSpriggs into the lead to remove the duplications. Vexorg (talk) 15:24, 24 April 2009 (UTC)

JRSpriggs please stop edit warring!! Your 'definition' was mostly a duplicate of info. I've merged your extra info into the lead. Vexorg (talk) 20:13, 25 April 2009 (UTC)

I've removed the US-centric aspect of the 2nd half of the lead and made it simpler to understand. Vexorg (talk) 05:14, 28 April 2009 (UTC)

To Vexorg: You are the one who is edit warring! You insist on removing my language and replacing it with misleading and unprofessional language. You delete the links to other relevant articles which I carefully worked into the lead. You are not even willing to tolerate the compromise of having both our versions separately. If you want to remove duplication, then remove it from your version, not mine (since obviously you have no idea how to write properly). JRSpriggs (talk) 08:04, 29 April 2009 (UTC)

There is nothing misleading about the lead of this article, and to call it unprofessional is nothing more than a personal attack. The point of an an encyclopaedia is to convey knowledge to all, not just those who already know the information and the jargon. I shall remove your duplications again and please stop the personal attacks. By having a clear and concise lead I have made this article and the concept of quantitative easing understandable by all. You should go into more detail and into regional jargon further down the page. Please stop the edit warring Vexorg (talk) 20:54, 29 April 2009 (UTC)

I agree with JRSpriggs's language of ex nihilo rather than 'out of thin air'. It is not pretentious jargon, but a more accurate and encyclopaedic way of stating the information. The new money is not actually created from thin air - it is created from nothing. 'Out of thin air' is merely a popular phrase, however it does not convey a precise enough meaning in this context. For these reasons, I am reinstating the language. Regards. Suicup (talk) 12:17, 29 April 2009 (UTC)

Not precise enough? You simply prove the point about 'pretentious jargon' - Out of thin air is precise in that it's a widespread and universally understood as meaning out of 'nothing'. That's why the BBC(reference) used it so people can understand the explanations. "The new money is not actually created from thin air - it is created from nothing." is a nonsense statement as 'thin air' = 'nothing' . Furthermore there's no case for saying ex nihilo is more encyclopedic. It's simply pretentious jargon, something which other editors have commented on above Vexorg (talk) 20:54, 29 April 2009 (UTC)

I'm also going to call for a Wikipedia administrator to look into this. It's not acceptable IMO to have duplicated sections in an article as a compromise. Vexorg (talk) 20:54, 29 April 2009 (UTC)

I suppose you'll be advocating complete removal of phrases like sui generis etc from Wikipedia too? Just because it is in Latin doesn't make it pretentious. If people don't know the meaning, it is wikilinked. And if they didn't know what it meant, they just learned a new phrase. You alone have been pushing this 'out of thin air' line Vexorg. A number of editors have disagreed however you have refused to compromise. So if you want to bring the administrators in i say bring it on. Regards. Suicup (talk) 13:57, 30 April 2009 (UTC)

• Vexorg asked me to comment. Looking at the lead, I tend to agree with both sides in that we do not dumb down articles without good reason, but we also don't intentionally use words and phrases that are unlikely to be common knowledge unless a brief explanation is provided. You cannot expect a user to open and read Articles B, C, D, and E just so s/he can understand the concepts of Article A. This can be fixed by simply changing the wording to something like "... pre-determined quantity of new money ex nihilo (Latin, meaning "out of nothing") as the start of a process...". Write articles as if the person reading them has 0 knowledge on the subject beyond common knowledge. Latin, for the vast majority of the population, is completely foreign.
• As for the "definition" section, that seems rather odd. The article itself is supposed to be an explanation of the concept. It shouldn't be shoved into a single section, but explained throughout (with emphasis in the Concept section). --auburnpilot talk 14:41, 30 April 2009 (UTC)

To Suicup: quit the personal attacks ala "mate quit the tall poppy syndrome" - 'thin air' is a phrase commonly and universally used in the English language to mean out of nothing. This is exactly why the BBC used the phrase in it's article(which is sourced). Thankyou to auburnpilot talk for commenting. The article lead now contains both phrases so hopefully we can drop it and move now? Vexorg (talk) 20:06, 30 April 2009 (UTC)

Three points:

1. Vexorg, AuburnPilot did not suggest we use 'out of thin air', rather he suggested we supply a definition of 'ex nihilo' in brackets.
2. The BBC is a news outlet. Wikipedia is a encyclopaedia. Thus, different mediums have different writing styles.
3. 'Just because the BBC does it' is not a legitimate reason. If the BBC said the ocean was red would we use that in Wikipedia? Of course not.

Furthermore, based on the views of numerous editors on this talk page, the consensus for this article seems to be against 'thin air' and for 'ex nihilo'. Hence, the latter is what we should have. Regards Suicup (talk) 10:54, 1 May 2009 (UTC)

Suicup: Four points:

1. AuburnPilot did not suggest the use of 'ex nihilo', he suggested that phrases like 'ex nihilo' should be explained if they are used.
2. The use of commonly known terms is not unencyclopaedic
3. "If the BBC said the ocean was red would we use that in Wikipedia? Of course not." - That's a ridiculous and, furthermore, erroneous logical argument.
4. Looking down the talk page the consensus isn't either way.

Therefore, and particularly bearing in mind that ;thin air' explains 'ex nihilo', it's fine to have both in. You have your pretentious jargon, I have my commonly known term so anyone can immediately understand the article. Now please stop edit warring. Vexorg (talk) 15:59, 1 May 2009 (UTC)

User:A.szczep, User:JRSpriggs, User:Mongreilf and myself (ie 4 editors) directly oppose the phrase and have commented about it on the talk page. No-one else has supported the phrase 'thin air' except you Vexorg. A couple have 'indirectly' supported the phrase by supporting the introduction etc, which doesn't really count. Hence, your comment that the consensus 'isn't either way' is frankly rubbish. You are the person which is calling a latin phrase 'pretentious jargon', others do not believe this is the case. You are hence the one pushing your POV on this article. Having both as a 'compromise' is overkill and reduces readability. I'd rather have just one term, and it seems that the term with the most consensus is 'ex nihilo', whether you like it or not. I appreciate that you have contributed to this article a lot, and possibly are the number 1 editor in terms of edit count for this article, however Wikipedia is a collaborative project, which requires compromise at times when the clear majority disagree with your view. This is one of those times. Regards Suicup (talk) 01:37, 2 May 2009 (UTC) I might also add that usage of Latin phrases is common throughout economics/finance articles. eg ceteris paribus, pro forma, ex ante, ex post and many many more. How is this particular example any different? Suicup (talk) 12:34, 2 May 2009 (UTC)

Suicup, your lying about User:Mongreilf directly opposing the term 'thin air' is noted. Your demands, i.e "To the other users, if you disagree, don't revert back, it will just create an edit war - discuss here first." is also noted. Your attitude: "whether you like it or not" is also noted. Your patronisation is also noted. And lastly there are only TWO editors, yourself and User:JRSpriggs that have put forward the term 'ex nihilo'. Technically a consensus, but in practice 2 to 1 is as weak as you can get. And remember I was happy to include the term 'ex nihilo' alongside 'thin air'. Anyway if it's that important to you then I'm not going to waste any more time fighting this. Hope you're happy now. Vexorg (talk) 19:17, 2 May 2009 (UTC)

It appears to me that the absolute crux of Quantitative Easing is that money is created from nothing. To me, as a non-economist, non-banker, this is the single most important thing that must be communicated. I can see that 'thin air' may be considered unwelcome language by some, especially those concerned with maintaining public confidence in the value of money. Equally, to use 'ex nihilo' is to introduce an unnecessary barrier to rapid comprehension for those who use Wikipedia as the point of first access to unfamiliar subjects. Why cannot we just call a spade a spade and ditch the 'thin air' and the 'ex nihilo' and settle on 'money is created from nothing'. It may then be appropriate to include a sentence referring to the 'thin air' and 'ex nihilo' alternative expressions. I think to leave the first sentence containing only 'ex nihilo' is likely to be perceived by some as needlessly obfuscatory. If 'ex nihilo' is a phrase in common currency (pun intended) among bankers and economists then there is no reason why this could not be noted in the article. —Preceding unsigned comment added by 82.70.224.69 (talk) 10:29, 3 May 2009 (UTC)

I agree. Having only the pretentious jargon is 'ex nihilo' is needlessly obfuscatory Vexorg (talk) 00:54, 8 May 2009 (UTC)

JRSpriggs entered a pointless addition to the lead. Apart from the citing of 'recession' this was sheer duplication. I have removed this and added the citation of 'recession' to where it should belong. I can see we're heading for another edit war [yawn] Vexorg (talk) 04:16, 8 May 2009 (UTC)

Oh and Spriggs! What's the nonsense with the WP:OWN ?? It's nothing to do with that. It's about improving the article. If you add pointless duplications then expect to get it removed. If you wanted to add 'recession' then you should put it where it is now, instead of adding pointless duplications. This is the SECOND TIME you have added sections that are largely duplications. Vexorg (talk) 04:21, 8 May 2009 (UTC)

Out of nothing

Just off the bat, what i'm about to write doesn't advocate changing the article. I'd just like to take the opportunity to point out that this massive discussion regarding the wording of where the money comes from essentially misses the point of the article. Sure the money 'comes from nothing'/ex nihilo/out of thin air etc, however this is not unique to quantitative easing. That is simply how the fiat currency system works. In normal times, you grow the money supply to keep pace with economic growth. Where does this 'money' come from? It is simply created. Quantitative easing does not change anything about HOW the money is created, it merely describes a particular type of MONETARY POLICY. I suppose what i'm trying to say is that some editors have been making a big deal of the fact that the money is created out of thin air etc, when this isn't the key issue. The key issue is the problem which quantitative easing is designed to solve (ie monetary policy at the zero interest rate bound), and its effectiveness. Hence in my humble opinion, making a big fuss about how the money is created from thin air etc is throwing a massive red herring around the place. Quantitative easing may be good or bad, and i think the article should stick to a discussion around this angle, which it does for the most part. Regards Suicup (talk) 15:14, 8 May 2009 (UTC)

My only fuss has been against those who want to tuck away the fact that money is created out of thin air/nothing/ex nihilo into the dark corner of the cupboard in the hope that it goes unnoticed. Wikipedia is aimed at everyone not just those with a specialist knowledge each article. And of course you are 100% correct in that quantitative easing is not the only process in which money is created from nothing. Deposit multiplication immediately springs to mind. I haven't visited that particular Wikipedia article recently, but I would wager that it's not clear that the increase in deposits are effectively created from nothing and I would also wager that any attempt to make this really clear is met some opposition as I've found here. Anyway I'm currently happy with the lead as it stands in regard to ex nihilo immediately followed by (out of nothing). Whether or not creating money 'out of nothing' is unique to QE it's still at the core of the process and should be immediately explained IMO. Vexorg (talk) 23:11, 8 May 2009 (UTC)

I have been wondering why Vexorg is making an issue of "out of thin air" out of thin air as it were. The most likely hypothesis seems to be that he has a hidden agenda. He is pushing the point of view that creating money is somehow dishonest, that is, when money is created the dilution effect amounts to stealing from those people who already have money. For example, if there were $2 trillion dollars in circulation and then the Fed created another $2 trillion (say by quantitative easing), he believes that this would result in half the value of the original $2 trillion being stolen and given to the recipients of the new $2 trillion.

However, if this is what he believes, then why does he not just say it instead of beating around the bush and playing with words? Perhaps he thinks that if he said it straight out that people would question whether it was really true, while if he sneaks it into their minds by the backdoor, then they will not question it. If so, then let me assure him that people are not so stupid as to fall for such a trick. JRSpriggs (talk) 06:29, 9 May 2009 (UTC)

I have changed my mind about not changing the article, and have decided to boldly rewrite the introduction, in order to reduce the emphasis on 'money coming from nothing'. I'm sure you will agree that the new introduction now far more effectively describes what QE is (a form of monetary policy), what it is supposed to achieve, and its associated risks. In fact, what I have written more faithfully reflects the points of the original BBC source, which had previously been abused for the 'out of thin air' arguments. I am actually considering rewriting the entire article along the lines of this flash video in the Financial Times, which does a superb job of explaining all the issues. If anyone has any confusion as to what QE is I highly recommend this video. Regards Suicup (talk) 14:49, 10 May 2009 (UTC)

While I haven't a problem with your new lead, considering rewriting the whole article is getting towards 'if it ain't broke don't fix it' Vexorg (talk) 17:09, 12 May 2009 (UTC)

Quantitative Easing "Noun")

Surely the term here: "Quantitative Easing" is now a noun, and so should start with upper case! —Preceding unsigned comment added by 88.106.172.215 (talk) 10:09, 24 May 2009 (UTC)

Most nouns are not capitalized in English. Some examples of nouns in your comment are "term", "noun", and "upper case". rspεεr (talk) 03:12, 4 July 2009 (UTC)

Article doesn't actually say anything

The article as written doesn't distinguish quantitative easing from normal central bank operations. For instance, the way it defines the method of increasing the money supply under quantitative easing is identical to what central banks do on a day-to-day basis to target a drop in interest rates (buy government securities from banks in exchange for credits in their electronic accounts). Moreover, central banks do not simply dictate interest rates (actually they only influence a couple of short-term ones, such as the interbank rate) but target them on an hourly basis through operations that are the same as quantitative easing, at least how you present it. Incidentally, you can find charts of market interest rates hour-by-hour versus the targets. The money supply is constantly in flux minute by minute. One can say the money printer and money shredder run 24/7.

What seems to distinguish quantitative easing from normal interest rate targeting is the maturity level of the government bonds being bought up by the central banks. Instead of short-term maturity treasury bills, the central bank is buying long-term government bonds as well as even corporate bonds under quantitative easing. Quantitative easing seems to be more a method of targeting long-term interest rates than anything else. G. Csikos, 21 June 2009. —Preceding unsigned comment added by 216.239.89.200 (talk) 07:54, 21 June 2009 (UTC)

I totally agree, the distinction between the two is not apparent in the article. I'm not an economics expert, therefore I am not sure of the right answer, however I believe everyday activity (when it's not QE) involves the use of repos (which is short term indeed) instead of directly buying and selling securities. Also, there are some claims that there should be a distinction with "printing money" based mostly on how the money is used (i.e. buying securities instead of monetizing the debt). Others however disagree.

See also http://www.bbc.co.uk/blogs/thereporters/stephanieflanders/2009/02/obtaining_the_right_to_print_m.html

Peter, 7 October 2009 —Preceding unsigned comment added by 85.72.35.7 (talk) 16:45, 7 October 2009 (UTC)

The difference between QE and normal monetary policy is that the central bank is unable to use interest rate targeting (since rates cannot go below zero) and must set targets for the quantity of money instead. That is all there is to it. There is no difference at the level of the member banks. JRSpriggs (talk) 09:40, 8 October 2009 (UTC)

So what you are saying is, there is no difference at the means, just the target? By implementing the exact same measures as in normal monetary policy, the outcome is higher money supply instead of lower interest rates (just because they can't get any lower)? I always thought lowering target interest rates is actually done through increasing money supply. Is it just me, or all this sounds a little pointless? I mean, there must be some kind of difference between the measures taken in these two cases... otherwise there is no real need for a new term. Peter. —Preceding unsigned comment added by 85.72.35.7 (talk) 16:15, 8 October 2009 (UTC)

Well, in practice the Fed has used some additional methods during during this recession (see Bernanke's recent speech) in conjunction with QE. But there is no necessary connection between the methods used and the targeting.

Yes, the Fed has to change the money supply to affect interest rates when targeting interest rates. When targeting interest rates, it might use say the Taylor rule to set the interest rate target and then adjust the money supply until it gets the desired interest rate. But if the Taylor rule specifies a negative value, then this cannot be done. The Fed has to do something else (QE) in that case, perhaps use the McCallum rule. JRSpriggs (talk) 09:59, 10 October 2009 (UTC)

private banks can't create money out of thin air

" The increase in deposits from the quantitative easing process causes an excess in reserves and private banks can then, if they wish, create even more new money out of 'thin air' by increasing debt (lending) through a process known as deposit multiplication and thus increase the country's money supply"
Private banks don't create money out of "thin air" so the quote is wrong. —Preceding unsigned comment added by 86.157.182.179 (talk) 21:50, 3 July 2009 (UTC)

See, Vexorg, "out of thin air" has no clear meaning. So I cannot even understand this man's comment nor the sentence on which he is commenting. Thus I cannot reply rationally to him. JRSpriggs (talk) 07:30, 4 July 2009 (UTC)

The correct term, I believe, is creation of credit. That's how I learned in school anyway; there doesn't seem to be a corresponding wikipedia article, so I'm reluctant to edit the article. It is based on the assumption that not all the amount deposited in banks is required as cash (i.e. cheques, debit, etc are acceptable as payment), so that cash can be lent to others on credit (who don't need the full cash amount either, so it goes further). To say that banks make "new money out of thin air" is categorically wrong: they lend existing money on credit (i.e. the promise that it will be repaid in due course). SG Gower (talk) 16:18, 17 January 2010 (UTC)

I think you're looking for Fractional Reserve Banking. Ravensfire (talk) 18:54, 17 January 2010 (UTC)

Yep, that looks right. Thanks! SG Gower (talk) 00:44, 18 January 2010 (UTC)

QE "temporary" - so when will it be reversed?

Reports of current use of QE as a policy tool say that it is "temporary", e.g. [1]. This is so that it doesnt linger in the system and stimulate inflation when the crisis has passed. Sooo... where has anyone said when the central bank purchased assets will be sold back into the financial system, and what will be the effect at that point?

E.g. The central bank purchases govt bonds under QE. This increases the money supply. To reverse QE the central bank later sells the govt bonds (to who?). What then does it do with the cash? Does it "destroy" it (which is what would have to happen to truly reverse QE)? This is quite an important point. Fig (talk) 15:03, 6 August 2009 (UTC)

Not all of it is done by buying government securities. There are many other methods also being used, e.g. the Term auction facility which lends money to banks over 28 day or 84 day periods.

Actual currency (Federal Reserve notes or coins) are neither created nor destroyed specifically for QE or its reverse. This is done with checking account money (book entries). JRSpriggs (talk) 12:15, 7 August 2009 (UTC)

I know it's not notes, and coins, but does the bank's 'funny money' last forever or does it get destroyed as whimsically as it was created. Andrewjlockley (talk) 12:24, 8 August 2009 (UTC)

They have expressed the intention of destroying most of it when the economy improves to the point that that can be done without undermining the economic recovery. This can be done either by letting the loans mature and be paid off (slow) or by selling them on the private market (faster, but less profitable). JRSpriggs (talk) 01:05, 10 August 2009 (UTC)

Please add this, with citations, to the article. Andrewjlockley (talk) 01:30, 11 August 2009 (UTC)

I am not going to try to improve this article, because Vexorg (talk · contribs) reverts any improvements I make. He likes to keep it really dumbed-down. However, if you want to try, a recent report to Congress at Semiannual Monetary Policy Report to the Congress included: "... we also believe that it is important to assure the public and the markets that the extraordinary policy measures we have taken in response to the financial crisis and the recession can be withdrawn in a smooth and timely manner as needed, thereby avoiding the risk that policy stimulus could lead to a future rise in inflation."; "... bank reserves held at the Fed will decline as the longer-term assets that we own mature or are prepaid."; "... we can drain liquidity from the system by conducting reverse repurchase agreements, in which we sell securities from our portfolio with an agreement to buy them back at a later date."; and "... another means of tightening policy is outright sales of our holdings of longer-term securities.". JRSpriggs (talk) 18:39, 12 August 2009 (UTC)

That they have expressed "the intention" of destroying the QE assets could be analogous to every nations "intention" to pay off its national debt! I.e. will it really happen? Also, does the central bank receive the usual interest payments on the debt it has bought from the government? If so, what does it do with that interest cash? Fig (talk) 11:13, 19 August 2009 (UTC)

Will they actually do what they say they will do? If I had a crystal ball, perhaps I could tell you.

Yes, the Fed does get interest on Treasury securities just like everyone else who owns them. They use the money to pay their expenses, including dividends on paid-in capital from member banks and interest on the reserves of member banks which are deposited in the Fed. Any leftover profit is turned over to the U.S. Treasury under the guise of "interest on federal reserve notes". See page 17 of the combined financial statement of the Federal Reserve system at Fed's financial statements. JRSpriggs (talk) 08:06, 21 August 2009 (UTC)

That's interesting - it means those securities are to an extent "interest-free". Surely then it isnt in the interests of the Treasury for the Fed to sell on the securities to private holders, since that would mean the Treasury wouldnt get back any of the interest payments they send! Does anyone know what the Japanese actually did in this scenario? Adding that info to the article might be instructive in the likely future actions of the Fed. Fig (talk) 10:39, 22 August 2009 (UTC)

No, if the Fed never bought U.S. Treasuries anymore, it would still make a profit on whatever other investment it made and be compelled to turn that profit over to the U.S. Treasury. So there is no advantage in buying U.S. Treasuries, except to guarantee the solvency of the U.S. government. JRSpriggs (talk) 11:27, 22 August 2009 (UTC)

Should it be 'government bonds' or 'treasuries'?

Isn't the term 'treasuries' a little US specific in a similar sense to the term 'gilts' as applies to the UK? Should the introduction not read 'government bonds' in keeping with the worldwide nature of Wikipedia? —Preceding unsigned comment added by 82.18.92.44 (talk) 22:00, 7 September 2009 (UTC)

Unfortunately, no terminology here would suit everyone. In America, "Government bonds" would be understood to refer only to Treasury securities with very long periods until maturity. Short-term are called "bills" and mid-term are called "notes". So confusion will occur either way. JRSpriggs (talk) 21:22, 8 September 2009 (UTC)

Perhaps just say 'short term government paper' Mitsuhirato (talk) 01:51, 9 September 2009 (UTC)

I changed it to "In practical terms, the central bank purchases financial assets (mostly short-term), including government paper and corporate bonds, from financial institutions (such as banks) using money it has created ...". How is that? JRSpriggs (talk) 07:54, 10 September 2009 (UTC)

Current Context of QE Should Be Discussed Up Front

Let me offer a simple example of how Bernanke's QE is different from the run-of-the-mill open market operations:

It is done in tandem with the Government's expansion of public debt. Whether the Fed is buying Treasuries in the market to create demand for a debt issuance or it is supporting Fannie Mae, Freddie Mac or Ginnie Mae securities (they are now extensions of Government policy) to stoke the home mortgage market, it is for all intents and purposes to execute policy outside the boundaries of its stated mission.

This is what is meant by the phrase "printing money" (as in a Department of Treasury operation) and only in the context of the government's purposes in crisis. It also opens up dicey trade relations if creditor nations suspect the policy is aimed at stealth devaluation of the dollar via laundering through the Fed's monetising run amok. Hence the public debt is paid off easier in the future.

Some harp at the term "thin air" but equally important is debt extinguishing into "thin air". That's what's happening at an alarming pace. QE as policy is also struggling to address the vacuum and not just the availability of credit. There is a difference. The term "printing money" evokes an air of last resort appropriately suiting the present crisis and the tools engaged to work it.

It is collusion with Treasury that gives QE its force and risk when it is discussed with "meltdown". That really is what QE means in the current situation and since most are coming here to find a lucid explanation of the term being thrown around, that should be squarely discussed in the first part of the article.

You get lost in the technical nuances of the narrow and historical meaning of QE which as it turns out isn't so tidy after all.

Good luck with the article. Edsdet (talk) 02:04, 22 September 2009 (UTC)

The "Out of nothing" point of view saturates this article

The lede and much entire article is written from a point of view: the one advocating that money should be backed by a physical commodity, otherwise it is "out of nothing". That advocacy would be rejected by a consensus of editors in a mainstream financial article like "Monetary policy", but here we have a cozy corner of the Wikipedia where it might not get the notice it should have.

Out of Nothing? That's certainly a criticism of the policy and central banking in general, but in this article it gets woven into the lede, the definition, its history, and the explanations of "Quantitative Easing". Who is characterizing this policy as "extreme" by the way? The repetition of "out of nothing" is tedious and conceptually this has more to do with fractional-reserve banking and fiat money than an specific central bank policy, money supply policy, or monetary policy.

I am flagging this article as having WP:COATRACK problems. A coat rack for those unfamiliar with the term is when editors create a coat rack (in this case Quantitative easing as a place for their coats (advocacy of currency backed by physical commodity). The article cries out as well, for some copyediting and structuring according wiki guidelines. patsw (talk) 14:41, 29 March 2010 (UTC)

I see what you mean about the point of view and the over-repetition of the "out of nothing" concept in the lede. I have removed the word extreme for now, but it seems the lede could be simplified. As to what sources write about "Quantitative easing", I notice this BBC page writes "out of thin air" (so I added it as a cite) and "economists would still argue that QE is the same principle as printing money". The Bank of England also writes "does not involve printing more banknotes. Instead the Bank pays for these assets by creating money electronically", and their explanatory pamphlet on QE appears to be quite informative. I also moved the BBC cite to the clause it supports and added a {{clarify}} request after the mention of deposit multiplication. Maybe the BofE document could serve as a guide for a rewrite? -84user (talk) 20:45, 29 March 2010 (UTC)

As you can see from the sections of talk above, I tried several times to fix this article, but Vexorg and others kept changing it back. Eventually, I gave up. The essential point of quantitative easing is that the central bank has to set a target for the money supply rather than for interest rates because the interest rate is already pinned at zero. JRSpriggs (talk) 12:13, 30 March 2010 (UTC)