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            From the articles, quantitative easing (QE) is an irregular policy method in which a central bank buys certain financial instruments from commercial banks, as well as private organizations to maintain inflation at acceptable levels. At the recent press conference by Ben Bernanke, the Fed chair, he proposed a reduction in the frequency of QE immediately the rate of unemployment falls below 7.0 percent. However, there is concern that the anticipated annual inflation rate could rise to 2.5% or higher and that could trigger a substantial reduction in the unemployment rate. In addition, the employment-to-population-ratio (EPOP) fell to 58.2% thereby meaning that roughly 9 million people are without jobs. Therefore, there is need to critically analyze the benefits of reducing QE in the long term and its impact on the economy.

Personal Opinion

            Quantitative easing is not printing money because it is only a redistribution of assets. Thus, the purchase of bonds from commercial banks by the central bank changes the composition of their portfolios without any money changing hands. As such, banks have their reserves deposited at the Fed. This policy is effective because it helps to reduce the interest rates since the long-term yield on these assets is lowered. Hence, the lack of physical money transfer means that there is no money printing that takes place. Consequently, there is no need for tapering. A reduction in the volume of purchased assets by the Fed will stir a rise in interest rates in the markets and this could spiral into hyperinflation should such circumstances reach unsustainable levels. In fact, the slow pace of GDP growth, at less than 1% suggests that any tapering will make investors and lenders adopt inappropriate risks in a bid to achieve higher returns.

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