Hello and welcome to today’s study. Last week, we discussed ‘interest rates’ and it was mentioned that it is like the heartbeat of the financial world. You want to know more? No problem. Just click on the blue tab below and enjoy the teaching.
Today, we talk Quantitative Easing.
Quantitative Easing (QE) might sound like a big word, but it simply means ‘the printing of money’.
QE is a tool used by central banks to give the economy a boost when things are feeling a bit slow. They do this by creating new money and using it to buy things like government bonds amongst others.
Why is it important for you to know about QE? Well, picture this: the economy is like a big car engine, and sometimes it needs a little extra fuel to keep running smoothly. When the central bank senses that the economy needs this extra fuel, they start quantitative easing. By buying those bonds and assets, they inject more money into the system, making it easier for people and businesses to borrow and invest.
How, might you ask? Well, interest rates tend to drop. When interest rates are lower, it's a good time to take a loan and invest in that dream business idea. Also, existing businesses get a boost too, as they can borrow at lower costs, invest in growth, and create more job opportunities.
Conversely, Quantitative easing has negative effects on the economy. One of which is the debasement of the currency. Debasement of a currency occurs when money is printed or created, and it is backed by nothing. It is literarily created from thin air. Just like magic. When this occurs, the already existing money in circulation is debased or reduced in value by the same number that is newly printed. Permit me to illustrate: if there are 100,000,000 (one hundred million) of whatever currency in circulation and then 10,000,000 (ten million) is printed/backed by nothing, then the one hundred million loses 10% of its value.
Another good example is that of a full glass of 100% orange juice. If you take a few sips and reduce the quantity by half, adding water to the glass increases the quantity of fluid in the glass but reduces the quality of the juice. Therefore, the orange juice reduces in quality by the amount of water poured into the glass. Same thing happens when newly printed money is injected into the economy via quantitative easing.
They gave Jesus a coin, and he asked, “Whose image and name are on the coin?” They answered, “Caesar’s.”
MARK 12:16 (NCV)