As you remember, we struggled through a recession and a number of other economic struggles. Many economists say that we aren’t really out of the whole thing yet, and even though the stock market is stronger and we have fewer unemployment claims every single month, it’s still pretty slow. Moving companies Winnipeg have been particularly effected negatively this quarter for some reason or another. Why has it taken so long for the economy to get back to where it needs to be? Why has this been an uphill battle the entire time that we’ve been trying to get the economy back in order?
One Big Issue
This is a lot of my own opinion, but I really think we can chalk a lot of these issues up to one big thing: debt. If you talk to people from all over the country and the world, you will find that struggling with debt is incredibly common, and it’s something that has affected the lives of most, people during their lifetime. It’s something that has been a plague for many people in the United States and all over the world as well.
I think that a lot of the debt problems that we have is a psychological issue. In our minds, we have made credit this “safety net,” where we look at it as a mini-loan. We will buy a big ticket item with the thought process of “Oh, I’ll pay it back when I get paid.” Interest accrues; we end up not being able to save money or spend it, thus making it so that we aren’t actually able to contribute to our economy in a positive manner.
There Is Good News And Bad News
Now, the good news right now is that people are getting out of debt. Of course, that means that there is also bad news that we have to think about as well. Because people are so focused on getting out of debt, they aren’t putting money into the rest of the economy, which so badly needs it. Until people truly get back on their feet and out from under the burden of debt, we’re going to continue to see the economy slowly come back out of the pit. This is why it’s so important that we explore ideas that help us to eliminate debt, to help get it off of the backs of those who are trapped by it, and to figure out ways that we can boost the economy in the midst of it.
As most of you know, the economy hasn’t been in the best shape over the past few years, even though it is finally starting to pick up and fix itself. And it’s just not the United States that has been having issues; it’s a worldwide thing. There are countries that are struggling and one of the methods that many central banks (including our own) have been using is called quantitative easing. Today, we’re going to talk a bit about the thoughts and practices behind quantitative easing.
What is quantitative easing?
Basically, it’s a form of economic stimulus that the central bank of a country utilizes so that banks are able to continue functioning. Central banks credit themselves by making more money and purchasing assets (bonds, stocks, etc) from financial institutions.
Why is it necessary?
One of the most important ways that banks make revenue is through interest rates. If they don’t collect interest on the loans that they provide, they don’t only lose revenue, but they are also able to generate more funds to distribute in the form of loans. If the interest rates on loans fall dangerously close to zero (or are at zero), these abilities (to generate revenue and to distribute loans) are eliminated, thus hurting the economy more and more until the market eventually crashes. Interest levels falling lower is supposed to generate more borrowing, but sometimes (especially in a bad economy where the issues are caused by consumers using too much credit, much like ours) that doesn’t happen. The stocks and bonds that were being purchased by the central bank now give the individual financial institutions some more leeway so that they are able to offer different interest rates. The interest rates can stay low, and encourage people to actually borrow.
What exactly is it supposed to do?
With quantitative easing, central banks “print money” (they really don’t, it’s just like a credit… they’re just crediting themselves. Yes, it adds to national debt) in order to buy stocks and bonds from financial institutions. This purchasing allows the banks to be able to loan out more money, generate more revenue and also help boost the economy by increasing spending and borrowing. It can be helpful if it’s trying to “jump start” the economy, but in other cases, it may end up causing more issues for everyone that is involved in the processes.
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