2010 quantitative easing - Revision history

Pestergaines: /* Qualitative easing */ +link, formatting

2011-11-23T22:58:10Z

Qualitative easing: +link, formatting

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	== Comparison with other instruments ==		== Comparison with other instruments ==
	=== Qualitative easing ===		=== Qualitative easing ===
			{{Main\|Qualitative easing}}
	[[Willem Buiter]] has proposed a terminology to distinguish ''quantitative easing'', or an expansion of a central bank's balance sheet, from what he terms ''qualitative easing'', or the process of a central bank adding riskier assets onto its balance sheet:		[[Willem Buiter]] has proposed a terminology to distinguish ''quantitative easing'', or an expansion of a central bank's balance sheet, from what he terms ''qualitative easing'', or the process of a central bank adding riskier assets onto its balance sheet:

	{{quote\|Quantitative easing is an increase in the size of the balance sheet of the central bank through an increase it is {{sic}} monetary liabilities ([[Monetary base\|base money]]), holding constant the composition of its assets. Asset composition can be defined as the proportional shares of the different financial instruments held by the central bank in the total value of its assets. An almost equivalent definition would be that quantitative easing is an increase in the size of the balance sheet of the central bank through an increase in its monetary liabilities that holds constant the (average) liquidity and riskiness of its asset portfolio.		{{quote\|'''Quantitative easing''' is an increase in the size of the balance sheet of the central bank through an increase it is {{sic}} monetary liabilities ([[Monetary base\|base money]]), holding constant the composition of its assets. Asset composition can be defined as the proportional shares of the different financial instruments held by the central bank in the total value of its assets. An almost equivalent definition would be that quantitative easing is an increase in the size of the balance sheet of the central bank through an increase in its monetary liabilities that holds constant the (average) liquidity and riskiness of its asset portfolio.

	Qualitative easing is a shift in the composition of the assets of the central bank towards less liquid and riskier assets, holding constant the size of the balance sheet (and the official policy rate and the rest of the list of usual suspects). The less liquid and more risky assets can be private securities as well as sovereign or sovereign-guaranteed instruments. All forms of risk, including credit risk (default risk) are included.<ref>		'''[[Qualitative easing]]''' is a shift in the composition of the assets of the central bank towards less liquid and riskier assets, holding constant the size of the balance sheet (and the official policy rate and the rest of the list of usual suspects). The less liquid and more risky assets can be private securities as well as sovereign or sovereign-guaranteed instruments. All forms of risk, including credit risk (default risk) are included.<ref>
	{{ cite web		{{ cite web
	\|url = http://blogs.ft.com/maverecon/2008/12/quantitative-easing-and-qualitative-easing-a-terminological-and-taxonomic-proposal/		\|url = http://blogs.ft.com/maverecon/2008/12/quantitative-easing-and-qualitative-easing-a-terminological-and-taxonomic-proposal/

Pestergaines: /* Links */ +res

2011-07-14T22:29:18Z

Links: +res

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	*Brown, Ellen; [http://www.counterpunch.org/brown09092010.html "How to Reverse a Deflation"], ''Counterpunch'', September 9, 2010		*Brown, Ellen; [http://www.counterpunch.org/brown09092010.html "How to Reverse a Deflation"], ''Counterpunch'', September 9, 2010
	*[http://www.democracynow.org/2010/11/5/new_600b_fed_stimulus_fuels_fears New $600B Fed Stimulus Fuels Fears of US Currency War] - video report by ''[[Democracy Now!]]''		*[http://www.democracynow.org/2010/11/5/new_600b_fed_stimulus_fuels_fears New $600B Fed Stimulus Fuels Fears of US Currency War] - video report by ''[[Democracy Now!]]''
			* [http://www.aier.org/research/briefs/2485-the-downside-of-monetary-easing The Downside of Monetary Easing] by William F. Ford, PhD, and Polina Vlasenko, PhD, July 2011

	[[Category:Issues]]		[[Category:Issues]]

Pesterbot: /* Links */External Links to Links, replaced: ==External links== → ==Links==

2011-06-21T19:28:57Z

Links: External Links to Links, replaced: ==External links== → ==Links==

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	{{Reflist\|colwidth=35em}}		{{Reflist\|colwidth=35em}}

	==~~External links~~==		==Links==
	*[http://www.usbudgetwatch.org/stimulus Stimulus Watch] Tracking all measures taken by the Federal Reserve and other US government agencies to address the financial and economic crisis		*[http://www.usbudgetwatch.org/stimulus Stimulus Watch] Tracking all measures taken by the Federal Reserve and other US government agencies to address the financial and economic crisis
	*[http://www.federalreserve.gov/BOARDDOCS/SPEECHES/2002/20021121/default.htm Deflation: Making Sure "It" Doesn't Happen Here], 2002 speech by Ben Bernanke on deflation and the utility of quantitative easing		*[http://www.federalreserve.gov/BOARDDOCS/SPEECHES/2002/20021121/default.htm Deflation: Making Sure "It" Doesn't Happen Here], 2002 speech by Ben Bernanke on deflation and the utility of quantitative easing

Pestergaines: +cat

2010-11-25T08:32:15Z

+cat

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	*Brown, Ellen; [http://www.counterpunch.org/brown09092010.html "How to Reverse a Deflation"], ''Counterpunch'', September 9, 2010		*Brown, Ellen; [http://www.counterpunch.org/brown09092010.html "How to Reverse a Deflation"], ''Counterpunch'', September 9, 2010
	*[http://www.democracynow.org/2010/11/5/new_600b_fed_stimulus_fuels_fears New $600B Fed Stimulus Fuels Fears of US Currency War] - video report by ''[[Democracy Now!]]''		*[http://www.democracynow.org/2010/11/5/new_600b_fed_stimulus_fuels_fears New $600B Fed Stimulus Fuels Fears of US Currency War] - video report by ''[[Democracy Now!]]''

			[[Category:Issues]]

Karmaisking: /* History */

2010-11-25T01:50:58Z

History

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	== History ==		== History ==
	Quantitative easing was used unsuccessfully<ref>[http://news.bbc.co.uk/1/hi/8517760.stm http://news.bbc.co.uk/1/hi/8517760.stm]</ref> by the [[Bank of Japan]] (BOJ) to fight domestic [[deflation]] in the [[Lost Decade (Japan)\|early 2000s]].<ref>{{cite web \|author=Mark Spiegel \|title=FRBSF: Economic Letter - Quantitative Easing by the Bank of Japan (11/02/2001) \|url=http://www.frbsf.org/publications/economics/letter/2001/el2001-31.html \|publisher=[[Federal Reserve Bank of San Francisco]] \|accessdate=2009-01-19}}</ref> During the [[Financial crisis of 2007–2010\|global financial crisis of 2008–the present]], policies announced by the [[US Federal Reserve]] under [[Ben Bernanke]] to counter the effects of the crisis are a form of quantitative easing. Its balance sheet expanded dramatically by adding new assets and new liabilities without "sterilizing" these by corresponding subtractions. In the same period the United Kingdom used quantitative easing as an additional arm of its monetary policy in order to alleviate its financial crisis.<ref>Alloway, Tracy, [http://ftalphaville.ft.com/blog/2008/11/10/18038/the-unthinkable-has-happened/ The Unthinkable Has Happened], [[ft.com]], 10 November 2008. Retrieved 9 August 2010.</ref><ref>[http://www.bloomberg.com/apps/news?pid=20601087&sid=aziecc.MkO28 ‘Bernanke-san’ Signals Policy Shift, Evoking Japan Comparison], Bloomberg.com, 2 December 2008</ref><ref>[http://www.ft.com/cms/s/0/2240b7ce-09ce-11de-add8-0000779fd2ac.html Bank pumps £75bn into economy], ft.com, 5 March 2009</ref>		Quantitative easing was used unsuccessfully<ref>[http://news.bbc.co.uk/1/hi/8517760.stm http://news.bbc.co.uk/1/hi/8517760.stm]</ref> by the [[Bank of Japan]] (BOJ) to fight domestic [[deflation]] in the [[Lost Decade (Japan)\|early 2000s]].<ref>{{cite web \|author=Mark Spiegel \|title=FRBSF: Economic Letter - Quantitative Easing by the Bank of Japan (11/02/2001) \|url=http://www.frbsf.org/publications/economics/letter/2001/el2001-31.html \|publisher=[[Federal Reserve Bank of San Francisco]] \|accessdate=2009-01-19}}</ref> Something similar was used by Zimbabwae and the Weimar Republic and other failed regimes in the past and excessive amounts of quantitative easing have in the past resulted in bouts of [[hyperinflation]]. During the [[Financial crisis of 2007–2010\|global financial crisis of 2008–the present]], policies announced by the [[US Federal Reserve]] under [[Ben Bernanke]] to counter the effects of the crisis are a form of quantitative easing. Its balance sheet expanded dramatically by adding new assets and new liabilities without "sterilizing" these by corresponding subtractions. In the same period the United Kingdom used quantitative easing as an additional arm of its monetary policy in order to alleviate its financial crisis.<ref>Alloway, Tracy, [http://ftalphaville.ft.com/blog/2008/11/10/18038/the-unthinkable-has-happened/ The Unthinkable Has Happened], [[ft.com]], 10 November 2008. Retrieved 9 August 2010.</ref><ref>[http://www.bloomberg.com/apps/news?pid=20601087&sid=aziecc.MkO28 ‘Bernanke-san’ Signals Policy Shift, Evoking Japan Comparison], Bloomberg.com, 2 December 2008</ref><ref>[http://www.ft.com/cms/s/0/2240b7ce-09ce-11de-add8-0000779fd2ac.html Bank pumps £75bn into economy], ft.com, 5 March 2009</ref>

	The [[European Central Bank]] has used 12-month long-term refinancing operations (a form of quantitative easing without referring to it as such) through a process of expanding the assets that banks can use as collateral that can be posted to the ECB in return for euros. This process has led to bonds being "structured for the ECB".<ref name="evans">Evans, Rachel, [http://www.iflr.com/Article/2006925/Unsellable-bonds-structured-to-abuse-ECB-scheme.html Unsellable bonds structured to abuse ECB scheme], IFLR, 2 February 2009</ref> By comparison the other central banks were very restrictive in terms of the collateral they accept: the US Federal Reserve used to accept primarily treasuries (in the first half of 2009 it bought almost any relatively safe dollar-denominated securities); the [[Bank of England]] applied a large [[haircut (finance)\|haircut]].		The [[European Central Bank]] has used 12-month long-term refinancing operations (a form of quantitative easing without referring to it as such) through a process of expanding the assets that banks can use as collateral that can be posted to the ECB in return for euros. This process has led to bonds being "structured for the ECB".<ref name="evans">Evans, Rachel, [http://www.iflr.com/Article/2006925/Unsellable-bonds-structured-to-abuse-ECB-scheme.html Unsellable bonds structured to abuse ECB scheme], IFLR, 2 February 2009</ref> By comparison the other central banks were very restrictive in terms of the collateral they accept: the US Federal Reserve used to accept primarily treasuries (in the first half of 2009 it bought almost any relatively safe dollar-denominated securities); the [[Bank of England]] applied a large [[haircut (finance)\|haircut]].

Karmaisking: typo - and thanks. I'm trying to remember to add the wiki template where appropriate.

2010-11-25T01:48:54Z

typo - and thanks. I'm trying to remember to add the wiki template where appropriate.

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	'''Quantitative easing''' ('''QE''') is a [[monetary policy]] used by some [[central banks]] to increase the [[supply of money]] by increasing the excess reserves of the banking system, generally through buying of the central government's own bonds to stabilize or raise their prices and thereby lower long-term interest rates. This policy is usually invoked when the normal methods to control the money supply have failed, i.e the [[bank rate\|bank interest rate]], [[discount rate]] and/or [[interbank rate\|interbank interest rate]] are either at, or close to, [[zero interest rate policy\|zero]]. It has been termed the electronic equivalent of simply printing legal tender.<ref>[http://www.telegraph.co.uk/finance/economics/8111153/Doubts-grow-over-wisdom-of-Ben-Bernanke-super-put.html Doubts grow over wisdom of Ben Bernanke's Super-Put], ''Telegraph''</ref>		'''Quantitative easing''' ('''QE''') is a [[monetary policy]] used by some [[central banks]] to increase the [[supply of money]] by increasing the excess reserves of the banking system, generally through buying of the central government's own bonds to stabilize or raise their prices and thereby lower long-term interest rates. This policy is usually invoked when the normal methods to control the money supply have failed, i.e the [[bank rate\|bank interest rate]], [[discount rate]] and/or [[interbank rate\|interbank interest rate]] are either at, or close to, [[zero interest rate policy\|zero]]. It has been termed the electronic equivalent of simply printing legal tender.<ref>[http://www.telegraph.co.uk/finance/economics/8111153/Doubts-grow-over-wisdom-of-Ben-Bernanke-super-put.html Doubts grow over wisdom of Ben Bernanke's Super-Put], ''Telegraph''</ref>

	This has been tried in the past to limited effect (as described below). In 2010, the US Federal Reserve began to implement the biggest round of quantitive easing in history. ~~It's~~ effects are unknown and commentators have widely differing views on its effectiveness in resuscitating the stalled US economy.<ref>[http://www.lewrockwell.com/schiff/schiff120.html Hail Mary], Peter Schiff</ref><ref>[http://www.lewrockwell.com/higgs/higgs170.html Bernanke's Apologia], Robert Higgs</ref><ref>[http://www.lewrockwell.com/spl2/competing-currency-wars.html QE2 as Economic Cancer], Jim Willie</ref>		This has been tried in the past to limited effect (as described below). In 2010, the US Federal Reserve began to implement the biggest round of quantitive easing in history. Its effects are unknown and commentators have widely differing views on its effectiveness in resuscitating the stalled US economy.<ref>[http://www.lewrockwell.com/schiff/schiff120.html Hail Mary], Peter Schiff</ref><ref>[http://www.lewrockwell.com/higgs/higgs170.html Bernanke's Apologia], Robert Higgs</ref><ref>[http://www.lewrockwell.com/spl2/competing-currency-wars.html QE2 as Economic Cancer], Jim Willie</ref>

	A central bank implements quantitative easing by first crediting its own account with money it creates ''[[ex nihilo]]'' ("out of nothing").<ref name="bbcnews"/> All [[fiat money]] is created out of nothing: out of thin air. It is, however, backed by all - the sum total of - the underlying value systems in an economy, namely sound governance, sound economic policies, sound monetary policies, sound industrial policies, sound commercial policies, etc. Annual inflation above the central bank´s inflation target indicates the excess of fiat money created in the banking system. The central bank then purchases financial assets, including [[government bond]]s, [[agency debt]], [[mortgage-backed securities]] and [[corporate bond]]s, from [[bank]]s and other [[financial institution]]s in a process referred to as [[open market operations]]. The purchases, by way of account deposits, give banks the excess reserves required for them to create new money, and thus hopefully induce a stimulation of the economy, by the process of [[Fractional-reserve_banking#Money_creation\|deposit multiplication]] from increased lending in the fractional reserve banking system.		A central bank implements quantitative easing by first crediting its own account with money it creates ''[[ex nihilo]]'' ("out of nothing").<ref name="bbcnews"/> All [[fiat money]] is created out of nothing: out of thin air. It is, however, backed by all - the sum total of - the underlying value systems in an economy, namely sound governance, sound economic policies, sound monetary policies, sound industrial policies, sound commercial policies, etc. Annual inflation above the central bank´s inflation target indicates the excess of fiat money created in the banking system. The central bank then purchases financial assets, including [[government bond]]s, [[agency debt]], [[mortgage-backed securities]] and [[corporate bond]]s, from [[bank]]s and other [[financial institution]]s in a process referred to as [[open market operations]]. The purchases, by way of account deposits, give banks the excess reserves required for them to create new money, and thus hopefully induce a stimulation of the economy, by the process of [[Fractional-reserve_banking#Money_creation\|deposit multiplication]] from increased lending in the fractional reserve banking system.

Forgottenman: specify edition of WP article in template

2010-11-21T18:29:06Z

specify edition of WP article in template

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	{{wikipedia text}}		{{wikipedia text\|Quantitative_easing\|397972820}}
	'''Quantitative easing''' ('''QE''') is a [[monetary policy]] used by some [[central banks]] to increase the [[supply of money]] by increasing the excess reserves of the banking system, generally through buying of the central government's own bonds to stabilize or raise their prices and thereby lower long-term interest rates. This policy is usually invoked when the normal methods to control the money supply have failed, i.e the [[bank rate\|bank interest rate]], [[discount rate]] and/or [[interbank rate\|interbank interest rate]] are either at, or close to, [[zero interest rate policy\|zero]]. It has been termed the electronic equivalent of simply printing legal tender.<ref>[http://www.telegraph.co.uk/finance/economics/8111153/Doubts-grow-over-wisdom-of-Ben-Bernanke-super-put.html Doubts grow over wisdom of Ben Bernanke's Super-Put], ''Telegraph''</ref>		'''Quantitative easing''' ('''QE''') is a [[monetary policy]] used by some [[central banks]] to increase the [[supply of money]] by increasing the excess reserves of the banking system, generally through buying of the central government's own bonds to stabilize or raise their prices and thereby lower long-term interest rates. This policy is usually invoked when the normal methods to control the money supply have failed, i.e the [[bank rate\|bank interest rate]], [[discount rate]] and/or [[interbank rate\|interbank interest rate]] are either at, or close to, [[zero interest rate policy\|zero]]. It has been termed the electronic equivalent of simply printing legal tender.<ref>[http://www.telegraph.co.uk/finance/economics/8111153/Doubts-grow-over-wisdom-of-Ben-Bernanke-super-put.html Doubts grow over wisdom of Ben Bernanke's Super-Put], ''Telegraph''</ref>

Karmaisking: /* External links */

2010-11-21T05:04:47Z

External links

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	==External links==		==External links==
	~~{{Wiktionary}}~~
	*[http://www.usbudgetwatch.org/stimulus Stimulus Watch] Tracking all measures taken by the Federal Reserve and other US government agencies to address the financial and economic crisis		*[http://www.usbudgetwatch.org/stimulus Stimulus Watch] Tracking all measures taken by the Federal Reserve and other US government agencies to address the financial and economic crisis
	*[http://www.federalreserve.gov/BOARDDOCS/SPEECHES/2002/20021121/default.htm Deflation: Making Sure "It" Doesn't Happen Here], 2002 speech by Ben Bernanke on deflation and the utility of quantitative easing		*[http://www.federalreserve.gov/BOARDDOCS/SPEECHES/2002/20021121/default.htm Deflation: Making Sure "It" Doesn't Happen Here], 2002 speech by Ben Bernanke on deflation and the utility of quantitative easing

Karmaisking: /* Concept */

2010-11-21T05:04:32Z

Concept

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	For example, in introducing its QE program, the [[Bank of England]] bought [[Gilt-edged securities\|gilt]]s from financial institutions, along with a smaller amount of relatively high-quality debt issued by private companies.<ref name="boe">{{Cite web\|url=http://www.bankofengland.co.uk/monetarypolicy/pdf/qe-pamphlet.pdf\|title=Quantitative Easing explained\|publisher=Bank of England\|pages=7–9\|quote=(page 7) Bank buys assets from ... institutions ... credits the seller’s bank account. So the seller has more money in their bank account, while their bank holds a corresponding claim against the Bank of England (known as reserves ... (page 8) high-quality debt ... (page 9) ... such as shares or company bonds. That will push up the prices of those assets,\|isbn=1 85730 114 5\|accessdate=20 July 2010}}</ref> The banks, insurance companies and pension funds can then use the money they have received for lending or even to buy back more bonds from the bank. The central bank can also lend the new money to private banks or buy assets from banks in exchange for currency. These have the effect of depressing interest yields on government bonds and similar investments, making it cheaper for business to raise capital.<ref name="bean"/> Another side effect is that investors will switch to other investments, such as shares, boosting their price and thus creating the illusion of increasing [[wealth]] in the economy.<ref name="boe"/> QE can reduce interbank overnight interest rates, and thereby encourage banks to loan money to higher interest-paying and financially weaker bodies.		For example, in introducing its QE program, the [[Bank of England]] bought [[Gilt-edged securities\|gilt]]s from financial institutions, along with a smaller amount of relatively high-quality debt issued by private companies.<ref name="boe">{{Cite web\|url=http://www.bankofengland.co.uk/monetarypolicy/pdf/qe-pamphlet.pdf\|title=Quantitative Easing explained\|publisher=Bank of England\|pages=7–9\|quote=(page 7) Bank buys assets from ... institutions ... credits the seller’s bank account. So the seller has more money in their bank account, while their bank holds a corresponding claim against the Bank of England (known as reserves ... (page 8) high-quality debt ... (page 9) ... such as shares or company bonds. That will push up the prices of those assets,\|isbn=1 85730 114 5\|accessdate=20 July 2010}}</ref> The banks, insurance companies and pension funds can then use the money they have received for lending or even to buy back more bonds from the bank. The central bank can also lend the new money to private banks or buy assets from banks in exchange for currency. These have the effect of depressing interest yields on government bonds and similar investments, making it cheaper for business to raise capital.<ref name="bean"/> Another side effect is that investors will switch to other investments, such as shares, boosting their price and thus creating the illusion of increasing [[wealth]] in the economy.<ref name="boe"/> QE can reduce interbank overnight interest rates, and thereby encourage banks to loan money to higher interest-paying and financially weaker bodies.

	More specifically, the lending undertaken by commercial banks (excluding Swedish banks: the Riksbank does not require reserves from Swedish commercial banks) is subject to [[fractional-reserve banking]]: they are subject to a regulatory [[reserve requirement]], which requires them to keep a percentage of deposits in "reserve",~~{{Citation needed\|date=July 2010}}:~~ these can only be used to settle transactions between them and the central bank.<ref name="bean"/> The remainder, called "excess reserves", can (but does not have to) be used as a basis for lending. When, under QE, a central bank buys from an institution, the institution's bank account is credited directly and their bank gains reserves.<ref name="boe"/> 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 [[Fractional-reserve_banking#Money_creation\|deposit multiplication]] and thus increase the country's money supply. The reserve requirement limits the amount of new money. For example a 10% reserve requirement means that for every $10,000 created by quantitative easing the total new money created is potentially $100,000. The US [[Federal Reserve]]'s now out-of-print booklet ''[[wikisource:Modern Money Mechanics\|Modern Money Mechanics]]'' explains the process.		More specifically, the lending undertaken by commercial banks (excluding Swedish banks: the Riksbank does not require reserves from Swedish commercial banks) is subject to [[fractional-reserve banking]]: they are subject to a regulatory [[reserve requirement]], which requires them to keep a percentage of deposits in "reserve", these can only be used to settle transactions between them and the central bank.<ref name="bean"/> The remainder, called "excess reserves", can (but does not have to) be used as a basis for lending. When, under QE, a central bank buys from an institution, the institution's bank account is credited directly and their bank gains reserves.<ref name="boe"/> 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 [[Fractional-reserve_banking#Money_creation\|deposit multiplication]] and thus increase the country's money supply. The reserve requirement limits the amount of new money. For example a 10% reserve requirement means that for every $10,000 created by quantitative easing the total new money created is potentially $100,000. The US [[Federal Reserve]]'s now out-of-print booklet ''[[wikisource:Modern Money Mechanics\|Modern Money Mechanics]]'' explains the process.

	A state must be in control of its own [[currency]] and [[monetary policy]] if it is to [[unilaterally]] employ quantitative easing. Countries in the [[eurozone]] (for example) cannot unilaterally use this policy tool, but must rely on the [[European Central Bank]] (ECB) to implement it.{{Citation needed\|date=July 2010}} There may also be other policy considerations. For example, under Article 123 of the [[Treaty on the Functioning of the European Union]]<ref name="bean"/> and later the [[Maastricht Treaty]], EU member states are not allowed to finance their public deficits (debts) by simply printing the money required to fill the hole, as happened, for example, in [[Weimar Germany]] and more recently in [[Zimbabwe]].<ref name="bbcnews"/> Banks using QE, such as the Bank of England, have argued that they are increasing the supply of money not to fund government debt but to prevent deflation, and will choose the financial products they buy accordingly, for example, by buying government bonds not straight from the government, but in secondary markets.<ref name="bbcnews"/><ref name="bean">{{Cite web\|authorlink=Charlie Bean\|first=Charles\|last=Bean\| url=http://www.bankofengland.co.uk/monetarypolicy/qe/askqa.htm\|title=Ask the Deputy Governor\|publisher=Bank of England\|date=July 2009\|accessdate=12 July 2010}}</ref>		A state must be in control of its own [[currency]] and [[monetary policy]] if it is to [[unilaterally]] employ quantitative easing. Countries in the [[eurozone]] (for example) cannot unilaterally use this policy tool, but must rely on the [[European Central Bank]] (ECB) to implement it.{{Citation needed\|date=July 2010}} There may also be other policy considerations. For example, under Article 123 of the [[Treaty on the Functioning of the European Union]]<ref name="bean"/> and later the [[Maastricht Treaty]], EU member states are not allowed to finance their public deficits (debts) by simply printing the money required to fill the hole, as happened, for example, in [[Weimar Germany]] and more recently in [[Zimbabwe]].<ref name="bbcnews"/> Banks using QE, such as the Bank of England, have argued that they are increasing the supply of money not to fund government debt but to prevent deflation, and will choose the financial products they buy accordingly, for example, by buying government bonds not straight from the government, but in secondary markets.<ref name="bbcnews"/><ref name="bean">{{Cite web\|authorlink=Charlie Bean\|first=Charles\|last=Bean\| url=http://www.bankofengland.co.uk/monetarypolicy/qe/askqa.htm\|title=Ask the Deputy Governor\|publisher=Bank of England\|date=July 2009\|accessdate=12 July 2010}}</ref>

Karmaisking: /* Concept */

2010-11-21T05:03:56Z

Concept

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	Ordinarily, the central bank uses its control of [[Central bank#Interest rates\|interest rates]], or sometimes [[reserve requirements]], to indirectly influence the [[supply of money]].<ref name="bbcnews"/> In some situations, such as very low inflation or [[deflation]], setting a low interest rate is not enough to maintain the level of money supply desired by the central bank, and so quantitative easing is employed to further boost the amount of money in the [[financial system]].<ref name="bbcnews">{{cite news \|title=Q&A: Quantitative easing \|date=9 March 2009 \|url=http://news.bbc.co.uk/1/hi/business/7924506.stm \|work=[[BBC]] \|accessdate=29 March 2009}}</ref> This is often considered a "last resort" to increase the money supply.<ref>{{cite news \|title=Quantitative easing: A therapy of last resort \|url=http://www.nytimes.com/2009/01/11/business/worldbusiness/11iht-views12.1.19248009.html \|publisher=[[The New York Times]] \|accessdate=12 July 2010 \|date=1 January 2009}}</ref><ref>{{cite news \|title=Quantitative easing: last resort to get credit moving again \|url=http://www.guardian.co.uk/business/2009/jan/29/question-and-answer-quantitative-easing \|publisher=[[The Guardian]] \|accessdate=12 July 2010 \|date=29 January 2009 \|first=Heather \|last=Stewart}}</ref> The first step is for the bank to "borrow" from the member bank reserve accounts, creating a depository liability.<ref>http://www.frbsf.org/education/activities/drecon/2010/0310.html</ref> It can then use these funds to buy investments like [[government bond]]s from financial firms such as banks, insurance companies and pension funds,<ref name="bbcnews"/> in a process known as "[[monetizing debt\|monetising the debt]]". The net impact on the central bank balance sheet is zero.		Ordinarily, the central bank uses its control of [[Central bank#Interest rates\|interest rates]], or sometimes [[reserve requirements]], to indirectly influence the [[supply of money]].<ref name="bbcnews"/> In some situations, such as very low inflation or [[deflation]], setting a low interest rate is not enough to maintain the level of money supply desired by the central bank, and so quantitative easing is employed to further boost the amount of money in the [[financial system]].<ref name="bbcnews">{{cite news \|title=Q&A: Quantitative easing \|date=9 March 2009 \|url=http://news.bbc.co.uk/1/hi/business/7924506.stm \|work=[[BBC]] \|accessdate=29 March 2009}}</ref> This is often considered a "last resort" to increase the money supply.<ref>{{cite news \|title=Quantitative easing: A therapy of last resort \|url=http://www.nytimes.com/2009/01/11/business/worldbusiness/11iht-views12.1.19248009.html \|publisher=[[The New York Times]] \|accessdate=12 July 2010 \|date=1 January 2009}}</ref><ref>{{cite news \|title=Quantitative easing: last resort to get credit moving again \|url=http://www.guardian.co.uk/business/2009/jan/29/question-and-answer-quantitative-easing \|publisher=[[The Guardian]] \|accessdate=12 July 2010 \|date=29 January 2009 \|first=Heather \|last=Stewart}}</ref> The first step is for the bank to "borrow" from the member bank reserve accounts, creating a depository liability.<ref>http://www.frbsf.org/education/activities/drecon/2010/0310.html</ref> It can then use these funds to buy investments like [[government bond]]s from financial firms such as banks, insurance companies and pension funds,<ref name="bbcnews"/> in a process known as "[[monetizing debt\|monetising the debt]]". The net impact on the central bank balance sheet is zero.

	For example, in introducing its QE ~~programme~~, the [[Bank of England]] bought [[Gilt-edged securities\|gilt]]s from financial institutions, along with a smaller amount of relatively high-quality debt issued by private companies.<ref name="boe">{{Cite web\|url=http://www.bankofengland.co.uk/monetarypolicy/pdf/qe-pamphlet.pdf\|title=Quantitative Easing explained\|publisher=Bank of England\|pages=7–9\|quote=(page 7) Bank buys assets from ... institutions ... credits the seller’s bank account. So the seller has more money in their bank account, while their bank holds a corresponding claim against the Bank of England (known as reserves ... (page 8) high-quality debt ... (page 9) ... such as shares or company bonds. That will push up the prices of those assets,\|isbn=1 85730 114 5\|accessdate=20 July 2010}}</ref> The banks, insurance companies and pension funds can then use the money they have received for lending or even to buy back more bonds from the bank. The central bank can also lend the new money to private banks or buy assets from banks in exchange for currency.~~{{Citation needed\|date=July 2010}}~~ These have the effect of depressing interest yields on government bonds and similar investments, making it cheaper for business to raise capital.<ref name="bean"/> Another side effect is that investors will switch to other investments, such as shares, boosting their price and thus creating the illusion of increasing [[wealth]] in the economy.<ref name="boe"/> QE can reduce interbank overnight interest rates, and thereby encourage banks to loan money to higher interest-paying and financially weaker bodies.		For example, in introducing its QE program, the [[Bank of England]] bought [[Gilt-edged securities\|gilt]]s from financial institutions, along with a smaller amount of relatively high-quality debt issued by private companies.<ref name="boe">{{Cite web\|url=http://www.bankofengland.co.uk/monetarypolicy/pdf/qe-pamphlet.pdf\|title=Quantitative Easing explained\|publisher=Bank of England\|pages=7–9\|quote=(page 7) Bank buys assets from ... institutions ... credits the seller’s bank account. So the seller has more money in their bank account, while their bank holds a corresponding claim against the Bank of England (known as reserves ... (page 8) high-quality debt ... (page 9) ... such as shares or company bonds. That will push up the prices of those assets,\|isbn=1 85730 114 5\|accessdate=20 July 2010}}</ref> The banks, insurance companies and pension funds can then use the money they have received for lending or even to buy back more bonds from the bank. The central bank can also lend the new money to private banks or buy assets from banks in exchange for currency. These have the effect of depressing interest yields on government bonds and similar investments, making it cheaper for business to raise capital.<ref name="bean"/> Another side effect is that investors will switch to other investments, such as shares, boosting their price and thus creating the illusion of increasing [[wealth]] in the economy.<ref name="boe"/> QE can reduce interbank overnight interest rates, and thereby encourage banks to loan money to higher interest-paying and financially weaker bodies.

	More specifically, the lending undertaken by commercial banks (excluding Swedish banks: the Riksbank does not require reserves from Swedish commercial banks) is subject to [[fractional-reserve banking]]: they are subject to a regulatory [[reserve requirement]], which requires them to keep a percentage of deposits in "reserve",{{Citation needed\|date=July 2010}}: these can only be used to settle transactions between them and the central bank.<ref name="bean"/> The remainder, called "excess reserves", can (but does not have to) be used as a basis for lending. When, under QE, a central bank buys from an institution, the institution's bank account is credited directly and their bank gains reserves.<ref name="boe"/> 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 [[Fractional-reserve_banking#Money_creation\|deposit multiplication]] and thus increase the country's money supply. The reserve requirement limits the amount of new money. For example a 10% reserve requirement means that for every $10,000 created by quantitative easing the total new money created is potentially $100,000. The US [[Federal Reserve]]'s now out-of-print booklet ''[[wikisource:Modern Money Mechanics\|Modern Money Mechanics]]'' explains the process.		More specifically, the lending undertaken by commercial banks (excluding Swedish banks: the Riksbank does not require reserves from Swedish commercial banks) is subject to [[fractional-reserve banking]]: they are subject to a regulatory [[reserve requirement]], which requires them to keep a percentage of deposits in "reserve",{{Citation needed\|date=July 2010}}: these can only be used to settle transactions between them and the central bank.<ref name="bean"/> The remainder, called "excess reserves", can (but does not have to) be used as a basis for lending. When, under QE, a central bank buys from an institution, the institution's bank account is credited directly and their bank gains reserves.<ref name="boe"/> 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 [[Fractional-reserve_banking#Money_creation\|deposit multiplication]] and thus increase the country's money supply. The reserve requirement limits the amount of new money. For example a 10% reserve requirement means that for every $10,000 created by quantitative easing the total new money created is potentially $100,000. The US [[Federal Reserve]]'s now out-of-print booklet ''[[wikisource:Modern Money Mechanics\|Modern Money Mechanics]]'' explains the process.

← Older revision		Revision as of 05:04, 21 November 2010
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	For example, in introducing its QE program, the [[Bank of England]] bought [[Gilt-edged securities\|gilt]]s from financial institutions, along with a smaller amount of relatively high-quality debt issued by private companies.<ref name="boe">{{Cite web\|url=http://www.bankofengland.co.uk/monetarypolicy/pdf/qe-pamphlet.pdf\|title=Quantitative Easing explained\|publisher=Bank of England\|pages=7–9\|quote=(page 7) Bank buys assets from ... institutions ... credits the seller’s bank account. So the seller has more money in their bank account, while their bank holds a corresponding claim against the Bank of England (known as reserves ... (page 8) high-quality debt ... (page 9) ... such as shares or company bonds. That will push up the prices of those assets,\|isbn=1 85730 114 5\|accessdate=20 July 2010}}</ref> The banks, insurance companies and pension funds can then use the money they have received for lending or even to buy back more bonds from the bank. The central bank can also lend the new money to private banks or buy assets from banks in exchange for currency. These have the effect of depressing interest yields on government bonds and similar investments, making it cheaper for business to raise capital.<ref name="bean"/> Another side effect is that investors will switch to other investments, such as shares, boosting their price and thus creating the illusion of increasing [[wealth]] in the economy.<ref name="boe"/> QE can reduce interbank overnight interest rates, and thereby encourage banks to loan money to higher interest-paying and financially weaker bodies.		For example, in introducing its QE program, the [[Bank of England]] bought [[Gilt-edged securities\|gilt]]s from financial institutions, along with a smaller amount of relatively high-quality debt issued by private companies.<ref name="boe">{{Cite web\|url=http://www.bankofengland.co.uk/monetarypolicy/pdf/qe-pamphlet.pdf\|title=Quantitative Easing explained\|publisher=Bank of England\|pages=7–9\|quote=(page 7) Bank buys assets from ... institutions ... credits the seller’s bank account. So the seller has more money in their bank account, while their bank holds a corresponding claim against the Bank of England (known as reserves ... (page 8) high-quality debt ... (page 9) ... such as shares or company bonds. That will push up the prices of those assets,\|isbn=1 85730 114 5\|accessdate=20 July 2010}}</ref> The banks, insurance companies and pension funds can then use the money they have received for lending or even to buy back more bonds from the bank. The central bank can also lend the new money to private banks or buy assets from banks in exchange for currency. These have the effect of depressing interest yields on government bonds and similar investments, making it cheaper for business to raise capital.<ref name="bean"/> Another side effect is that investors will switch to other investments, such as shares, boosting their price and thus creating the illusion of increasing [[wealth]] in the economy.<ref name="boe"/> QE can reduce interbank overnight interest rates, and thereby encourage banks to loan money to higher interest-paying and financially weaker bodies.

	More specifically, the lending undertaken by commercial banks (excluding Swedish banks: the Riksbank does not require reserves from Swedish commercial banks) is subject to [[fractional-reserve banking]]: they are subject to a regulatory [[reserve requirement]], which requires them to keep a percentage of deposits in "reserve",~~{{Citation needed\|date=July 2010}}:~~ these can only be used to settle transactions between them and the central bank.<ref name="bean"/> The remainder, called "excess reserves", can (but does not have to) be used as a basis for lending. When, under QE, a central bank buys from an institution, the institution's bank account is credited directly and their bank gains reserves.<ref name="boe"/> 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 [[Fractional-reserve_banking#Money_creation\|deposit multiplication]] and thus increase the country's money supply. The reserve requirement limits the amount of new money. For example a 10% reserve requirement means that for every $10,000 created by quantitative easing the total new money created is potentially $100,000. The US [[Federal Reserve]]'s now out-of-print booklet ''[[wikisource:Modern Money Mechanics\|Modern Money Mechanics]]'' explains the process.		More specifically, the lending undertaken by commercial banks (excluding Swedish banks: the Riksbank does not require reserves from Swedish commercial banks) is subject to [[fractional-reserve banking]]: they are subject to a regulatory [[reserve requirement]], which requires them to keep a percentage of deposits in "reserve", these can only be used to settle transactions between them and the central bank.<ref name="bean"/> The remainder, called "excess reserves", can (but does not have to) be used as a basis for lending. When, under QE, a central bank buys from an institution, the institution's bank account is credited directly and their bank gains reserves.<ref name="boe"/> 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 [[Fractional-reserve_banking#Money_creation\|deposit multiplication]] and thus increase the country's money supply. The reserve requirement limits the amount of new money. For example a 10% reserve requirement means that for every $10,000 created by quantitative easing the total new money created is potentially $100,000. The US [[Federal Reserve]]'s now out-of-print booklet ''[[wikisource:Modern Money Mechanics\|Modern Money Mechanics]]'' explains the process.

	A state must be in control of its own [[currency]] and [[monetary policy]] if it is to [[unilaterally]] employ quantitative easing. Countries in the [[eurozone]] (for example) cannot unilaterally use this policy tool, but must rely on the [[European Central Bank]] (ECB) to implement it.{{Citation needed\|date=July 2010}} There may also be other policy considerations. For example, under Article 123 of the [[Treaty on the Functioning of the European Union]]<ref name="bean"/> and later the [[Maastricht Treaty]], EU member states are not allowed to finance their public deficits (debts) by simply printing the money required to fill the hole, as happened, for example, in [[Weimar Germany]] and more recently in [[Zimbabwe]].<ref name="bbcnews"/> Banks using QE, such as the Bank of England, have argued that they are increasing the supply of money not to fund government debt but to prevent deflation, and will choose the financial products they buy accordingly, for example, by buying government bonds not straight from the government, but in secondary markets.<ref name="bbcnews"/><ref name="bean">{{Cite web\|authorlink=Charlie Bean\|first=Charles\|last=Bean\| url=http://www.bankofengland.co.uk/monetarypolicy/qe/askqa.htm\|title=Ask the Deputy Governor\|publisher=Bank of England\|date=July 2009\|accessdate=12 July 2010}}</ref>		A state must be in control of its own [[currency]] and [[monetary policy]] if it is to [[unilaterally]] employ quantitative easing. Countries in the [[eurozone]] (for example) cannot unilaterally use this policy tool, but must rely on the [[European Central Bank]] (ECB) to implement it.{{Citation needed\|date=July 2010}} There may also be other policy considerations. For example, under Article 123 of the [[Treaty on the Functioning of the European Union]]<ref name="bean"/> and later the [[Maastricht Treaty]], EU member states are not allowed to finance their public deficits (debts) by simply printing the money required to fill the hole, as happened, for example, in [[Weimar Germany]] and more recently in [[Zimbabwe]].<ref name="bbcnews"/> Banks using QE, such as the Bank of England, have argued that they are increasing the supply of money not to fund government debt but to prevent deflation, and will choose the financial products they buy accordingly, for example, by buying government bonds not straight from the government, but in secondary markets.<ref name="bbcnews"/><ref name="bean">{{Cite web\|authorlink=Charlie Bean\|first=Charles\|last=Bean\| url=http://www.bankofengland.co.uk/monetarypolicy/qe/askqa.htm\|title=Ask the Deputy Governor\|publisher=Bank of England\|date=July 2009\|accessdate=12 July 2010}}</ref>

← Older revision		Revision as of 05:03, 21 November 2010
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	Ordinarily, the central bank uses its control of [[Central bank#Interest rates\|interest rates]], or sometimes [[reserve requirements]], to indirectly influence the [[supply of money]].<ref name="bbcnews"/> In some situations, such as very low inflation or [[deflation]], setting a low interest rate is not enough to maintain the level of money supply desired by the central bank, and so quantitative easing is employed to further boost the amount of money in the [[financial system]].<ref name="bbcnews">{{cite news \|title=Q&A: Quantitative easing \|date=9 March 2009 \|url=http://news.bbc.co.uk/1/hi/business/7924506.stm \|work=[[BBC]] \|accessdate=29 March 2009}}</ref> This is often considered a "last resort" to increase the money supply.<ref>{{cite news \|title=Quantitative easing: A therapy of last resort \|url=http://www.nytimes.com/2009/01/11/business/worldbusiness/11iht-views12.1.19248009.html \|publisher=[[The New York Times]] \|accessdate=12 July 2010 \|date=1 January 2009}}</ref><ref>{{cite news \|title=Quantitative easing: last resort to get credit moving again \|url=http://www.guardian.co.uk/business/2009/jan/29/question-and-answer-quantitative-easing \|publisher=[[The Guardian]] \|accessdate=12 July 2010 \|date=29 January 2009 \|first=Heather \|last=Stewart}}</ref> The first step is for the bank to "borrow" from the member bank reserve accounts, creating a depository liability.<ref>http://www.frbsf.org/education/activities/drecon/2010/0310.html</ref> It can then use these funds to buy investments like [[government bond]]s from financial firms such as banks, insurance companies and pension funds,<ref name="bbcnews"/> in a process known as "[[monetizing debt\|monetising the debt]]". The net impact on the central bank balance sheet is zero.		Ordinarily, the central bank uses its control of [[Central bank#Interest rates\|interest rates]], or sometimes [[reserve requirements]], to indirectly influence the [[supply of money]].<ref name="bbcnews"/> In some situations, such as very low inflation or [[deflation]], setting a low interest rate is not enough to maintain the level of money supply desired by the central bank, and so quantitative easing is employed to further boost the amount of money in the [[financial system]].<ref name="bbcnews">{{cite news \|title=Q&A: Quantitative easing \|date=9 March 2009 \|url=http://news.bbc.co.uk/1/hi/business/7924506.stm \|work=[[BBC]] \|accessdate=29 March 2009}}</ref> This is often considered a "last resort" to increase the money supply.<ref>{{cite news \|title=Quantitative easing: A therapy of last resort \|url=http://www.nytimes.com/2009/01/11/business/worldbusiness/11iht-views12.1.19248009.html \|publisher=[[The New York Times]] \|accessdate=12 July 2010 \|date=1 January 2009}}</ref><ref>{{cite news \|title=Quantitative easing: last resort to get credit moving again \|url=http://www.guardian.co.uk/business/2009/jan/29/question-and-answer-quantitative-easing \|publisher=[[The Guardian]] \|accessdate=12 July 2010 \|date=29 January 2009 \|first=Heather \|last=Stewart}}</ref> The first step is for the bank to "borrow" from the member bank reserve accounts, creating a depository liability.<ref>http://www.frbsf.org/education/activities/drecon/2010/0310.html</ref> It can then use these funds to buy investments like [[government bond]]s from financial firms such as banks, insurance companies and pension funds,<ref name="bbcnews"/> in a process known as "[[monetizing debt\|monetising the debt]]". The net impact on the central bank balance sheet is zero.

	For example, in introducing its QE ~~programme~~, the [[Bank of England]] bought [[Gilt-edged securities\|gilt]]s from financial institutions, along with a smaller amount of relatively high-quality debt issued by private companies.<ref name="boe">{{Cite web\|url=http://www.bankofengland.co.uk/monetarypolicy/pdf/qe-pamphlet.pdf\|title=Quantitative Easing explained\|publisher=Bank of England\|pages=7–9\|quote=(page 7) Bank buys assets from ... institutions ... credits the seller’s bank account. So the seller has more money in their bank account, while their bank holds a corresponding claim against the Bank of England (known as reserves ... (page 8) high-quality debt ... (page 9) ... such as shares or company bonds. That will push up the prices of those assets,\|isbn=1 85730 114 5\|accessdate=20 July 2010}}</ref> The banks, insurance companies and pension funds can then use the money they have received for lending or even to buy back more bonds from the bank. The central bank can also lend the new money to private banks or buy assets from banks in exchange for currency.~~{{Citation needed\|date=July 2010}}~~ These have the effect of depressing interest yields on government bonds and similar investments, making it cheaper for business to raise capital.<ref name="bean"/> Another side effect is that investors will switch to other investments, such as shares, boosting their price and thus creating the illusion of increasing [[wealth]] in the economy.<ref name="boe"/> QE can reduce interbank overnight interest rates, and thereby encourage banks to loan money to higher interest-paying and financially weaker bodies.		For example, in introducing its QE program, the [[Bank of England]] bought [[Gilt-edged securities\|gilt]]s from financial institutions, along with a smaller amount of relatively high-quality debt issued by private companies.<ref name="boe">{{Cite web\|url=http://www.bankofengland.co.uk/monetarypolicy/pdf/qe-pamphlet.pdf\|title=Quantitative Easing explained\|publisher=Bank of England\|pages=7–9\|quote=(page 7) Bank buys assets from ... institutions ... credits the seller’s bank account. So the seller has more money in their bank account, while their bank holds a corresponding claim against the Bank of England (known as reserves ... (page 8) high-quality debt ... (page 9) ... such as shares or company bonds. That will push up the prices of those assets,\|isbn=1 85730 114 5\|accessdate=20 July 2010}}</ref> The banks, insurance companies and pension funds can then use the money they have received for lending or even to buy back more bonds from the bank. The central bank can also lend the new money to private banks or buy assets from banks in exchange for currency. These have the effect of depressing interest yields on government bonds and similar investments, making it cheaper for business to raise capital.<ref name="bean"/> Another side effect is that investors will switch to other investments, such as shares, boosting their price and thus creating the illusion of increasing [[wealth]] in the economy.<ref name="boe"/> QE can reduce interbank overnight interest rates, and thereby encourage banks to loan money to higher interest-paying and financially weaker bodies.

	More specifically, the lending undertaken by commercial banks (excluding Swedish banks: the Riksbank does not require reserves from Swedish commercial banks) is subject to [[fractional-reserve banking]]: they are subject to a regulatory [[reserve requirement]], which requires them to keep a percentage of deposits in "reserve",{{Citation needed\|date=July 2010}}: these can only be used to settle transactions between them and the central bank.<ref name="bean"/> The remainder, called "excess reserves", can (but does not have to) be used as a basis for lending. When, under QE, a central bank buys from an institution, the institution's bank account is credited directly and their bank gains reserves.<ref name="boe"/> 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 [[Fractional-reserve_banking#Money_creation\|deposit multiplication]] and thus increase the country's money supply. The reserve requirement limits the amount of new money. For example a 10% reserve requirement means that for every $10,000 created by quantitative easing the total new money created is potentially $100,000. The US [[Federal Reserve]]'s now out-of-print booklet ''[[wikisource:Modern Money Mechanics\|Modern Money Mechanics]]'' explains the process.		More specifically, the lending undertaken by commercial banks (excluding Swedish banks: the Riksbank does not require reserves from Swedish commercial banks) is subject to [[fractional-reserve banking]]: they are subject to a regulatory [[reserve requirement]], which requires them to keep a percentage of deposits in "reserve",{{Citation needed\|date=July 2010}}: these can only be used to settle transactions between them and the central bank.<ref name="bean"/> The remainder, called "excess reserves", can (but does not have to) be used as a basis for lending. When, under QE, a central bank buys from an institution, the institution's bank account is credited directly and their bank gains reserves.<ref name="boe"/> 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 [[Fractional-reserve_banking#Money_creation\|deposit multiplication]] and thus increase the country's money supply. The reserve requirement limits the amount of new money. For example a 10% reserve requirement means that for every $10,000 created by quantitative easing the total new money created is potentially $100,000. The US [[Federal Reserve]]'s now out-of-print booklet ''[[wikisource:Modern Money Mechanics\|Modern Money Mechanics]]'' explains the process.