03/17/2021 11:20
NEW MONEY Do you think we need to print new money? Interesting question, isn't it? However, new money is printed, although the banknotes usually remain the same. This totally new phenomenon is called quantitative release. Quantitative easing (QE) is a monetary policy used by central banks to stimulate the economy. It is used when the standard monetary economy becomes inefficient. The central bank performs quantitative easing by purchasing financial assets from commercial banks and other financial institutions. It increases the price of these financial assets and reduces their return, while increasing the money supply. In general, this is a situation where the central bank buys large volumes of assets, such as mortgage securities. Through this unconventional monetary policy, it seeks to reduce long-term interest rates so that the economy grows faster, speaking of the third wave. 2) How does it work? In order for the bank to be able to buy assets, it creates uncovered money. This is done by buying securities from commercial banks, to which he will credit the corresponding amount to their account. The money will appear in the account that commercial banks have with the central bank. There are mostly low interest rates per year, and central banks therefore hope that commercial banks will want to use the money more efficiently. Ideally, they should provide them in the form of loans to companies and individuals; they will receive higher interest for such loans. If companies buy production equipment for money and individuals buy cars or real estate, then the economy should be set in motion. However, sign banks are not sure that banks will actually use the money to provide loans. Central bank purchases of securities also help reduce the cost of credit. Massive purchases of any asset increase its market price, and at the same time the yield decreases. In addition, those investors who are no longer willing to buy assets at such an increased price are looking for other investment options. For example, corporate bonds. Demand for them will then rise, reducing yields. Companies will be able to borrow cheaper and will be able to spend more. Cedulová banka then again hopes that this will help companies move the economy. 3) When the cost of credit decreases and banks have reason to provide more credit, companies should start spending and investing more. These are conditions that usually lead to higher demand for labor and thus to a reduction in the unemployment rate. Most studies show that quantitative easing has indeed reduced the cost of credit, at least in line with ten-year ten-year key government bond yields. However, studies do not provide a clear answer to the question of how much lower credit costs translate into a real improvement in the state of the economy, such as the creation of new jobs. What are the risks of such a procedure? Purchases of assets increase the balance sheets of central banks. Central banks claim that they are able to reduce the balance sheet adequately if necessary, and thus prevent high inflation, but they have never tried anything like this in the past. Critics also argue that massive bond purchases allow the state administration to acquire a partner who buys the ever-increasing government debt. In addition, foreign economies are flooded with capital, which they have difficulty absorbing without negative effects. The owners of giant globalized corporations then shake hands with me from extreme profits, and often "economic experts and analysts" paid by them rejoice in economic growth. New banks are born like mushrooms after the rain and provide new and new loans to people and families who know in advance that they will never repay them. It used to be common for a person to first have to earn hard money and save money before buying a car, washing machine or television. The policy of constant indebtedness of families, people but also entire states leads to severe financial crises and to the stress of debtors, which often results in mental disorders and collapse leading to homelessness on the periphery of society or suicide of individuals who have already lost respect for themselves. This lifestyle seems to be becoming a hopeless situation. The current pandemic will, of course, cause significant damage to the economy. However, I do not think that they can be treated with just or just quantitative release. Banks, and not only those, have a significant excess of liquidity, and this vast money supply will continue to grow through this “quantitative easing, ie the release of newly printed money. A relatively simple solution is offered. Allocate excess liquidity to meaningful projects and to the necessary sectors of the economy and localities. This is the only way to avoid the situation we experienced in 1953. That is, our parents and possibly grandparents