‘Life is painful and disappointing. It is useless, therefore, to write new realistic novels. We generally know where we stand in relation to reality and don’t care to know any more.’ –Michel Houellebecq
Central banks usually strengthen the economy through a single, vastly powerful tool — lowering interest rates. When the Federal Reserve makes it cheaper for banks to borrow money, that stimulus generally flows through the entire economy, as the banks make loans that in turn stimulate economic activity.
But when times are so dire that banks are reluctant to lend whatever the cost, interest rate cuts lose their punch. That happened in Japan after the bursting of its real-estate bubble in 1991, and happened again in the wake of the credit crisis that upended Wall Street in the fall of 2008. In those circumstances, central banks turn to what economists call “quantitative easing” — unorthodox methods of pumping money into an economy and working to lower interest rates that central bankers do not usually control. Their effect is the same as printing money in vast quantities, but without ever turning on the printing presses.
