The Problem with Printing Money
The Federal Reserve’s dramatic new intervention into the U.S. economy—a $600 billion purchase of Treasury bonds that was immediately branded with the nautical nickname of QE2—had barely gotten underway in November 2010 before the Fed itself began sending signals that it had a public-relations disaster on its hands. In a speech to European central bankers in Frankfurt only two weeks after the policy was announced, Fed chairman Ben Bernanke said he didn’t like using the term “quantitative easing”—much less “QE2” —because it didn’t precisely describe what the central bank was trying to do by running the printing presses overtime.
Technically, Bernanke had a point. “Quantitative easing” usually describes rare efforts by a central bank to pump money into the private banking system in hopes that the banks will then lend out the new funds to business. But that isn’t the main goal of QE2, nor of the Fed’s previous $2 trillion bond-buying effort (the original “QE”) that began in November 2008.
About the Author
James Pethokoukis is an economics columnist for Reuters.