Question

What are the ramifications of the quantitative easing policies that were instituted during the recent "Great Recession"? Do you think the transfer of debt from the Consumer to the Government was a wise policy move? Why or why not?

Answer 1

In November of the year when the Great Recession took place, the Federal Reserve undertook its first round of unorthodox policy in the form of large scale asset purchases, commonly called Quantitative Easing (QE), in an effort to avert that disaster.

Six years later the Fed appears to have succeeded in preventing the Great Recession from becoming another Great Depression and the central bank is now poised to halt its QE program.

However, one of the ramifications involved in this is that QE creates a danger of surging inflation. The policy involves creating new money - an awful lot of a particular type of money - and there is a long history of economic theory that argues that rapid increases in the money supply eventually leads to higher inflation. Also, the IMF accepted that policies such as QE were important for economic recovery but it also warned of a danger of "excessive financial risk taking".