Quantitative Easing – Use it to YOUR advantage
Posted on 04. Jun, 2009 by Global in Economic News, Stock Broker Reports
Interest rates in Australia have not been as low as they are right now since the 1960’s, house prices have fallen, falling or come to a temporary stand still, we’re not paying anywhere near what we paid last year for petrol and most of us have free money in our pockets right now thanks to Mr Rudd.
…so why does everyone still seem so unsure and concerned?
Unfortunately, the average person is so absorbed in the current activity and daily media gloom that they miss out on seeing the future driving forces of our financial markets.
Do you realise that government’s worldwide have quite possibly created for us some unbelievable investment opportunities?
Central banks around the globe have attempted to pull a rabbit out of a hat by muttering those magic words ‘quantitative easing’ and we can see the positive effect they’ve already had on our own financial markets. Although the long term effects of this may not offer the rosiest economic future (like inflation), if you have the right financial education and you know how to protect your hard earned cash, right now may just be the time to put the necessary steps in place to completely change your financial future.
So what is quantitative easing?
It’s the term used to describe an extreme form of monetary policy used when interest rates are so low (even zero) and cannot be lowered further in an attempt to stimulate the economy.
The simplest explanation is that the government uses money they create out of nothing to purchase financial assets such as securities, government debt, mortgages, commercial loans and stocks from banks, effectively giving them new money to lend. Where does this new money come from? The printing press of course!
Does this explain the recent rally in global markets a little clearer?
Now just as massive money growth translates into economic stimulus, a declining expectation of deflation is also positive. In other words, people don’t spend when they think prices will be lower tomorrow, but when they expect them to be higher, it makes sense for them to spend today.
When nations spend, prices go up. The opposite of quantitative easing is quantitative tightening and the first way a government does this to control inflation is to raise interest rates. And so the cycle continues….
Imagine looking back in 12 months time and wishing you had gotten off the fence and taken the necessary steps today…
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