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The quantitative easing pandemic

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US Federal Reserve Chairperson Jerome Powell.
US Federal Reserve Chairperson Jerome Powell.

During the 2008/2009 global financial crisis, the US Federal Reserve responded with a combination of ultra-low interest rates and quantitative easing, the latter of which involved purchasing securities from the market, typically in the form of newly-issued US Treasury debt instruments.

This has the effect of further lowering interest rates by increasing the supply of money. Lower interest rates improve the income statements of households and businesses that already have debt and make it easier for those who wish to accumulate additional debt.

Clearly the preference is for debt to fund the acquisition of long-term productive assets, but even debt that funds current consumption behaviour adds to the economy, albeit only in the short term.

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