Quantitative Easing is both the dread and savior of the economy as of late. I personally will never understand the far reach of this policy, and I'm sure 99% of Americans are in the same boat. From my standpoint, I want you all to know that right now is a terrible time to save money in cash; you must invest because a dollar today may be $0.90 in a couple of years. Quantitative Easing (QE) has a history as long as civilization, with effects seen in CPI (inflation), banking, global economy, and finally consumers. While this policy is ubiquitous and effective, many economists have alternatives more effective in theory.
The easiest way to begin would be a description of the policy. The goal of an economy is to control inflation by any means (normally by manipulating short term interest rates). QE attempts to control high borrowing rates and inflation by creating new money for the central banks. This is carried out by purchase of assets, whether it be municipal bonds, T-bonds, or other low risk assets. Such assets are purchased with freshly printed money in large quantity. Money and interest rates typically have an inverse correlation. More money begets a lower interest rate and thus more economical growth and employment.
In the beginning of 2009, banks lowered rates nearly to the zero lower bound to entice growth, which still eluded our economy, as did employment. Our economy faced the real possibility of deflation. We soon began QE and the Fed is currently printing $85 Billion each month, which will diversify bank portfolios with various investments, increasing the worth therein, thereby causing lower interest rates. QE also forecasts inflations, since, all other things being equal, more money will lower its value. The effect would be that consumers spend more now in anticipation of the same money being worth less in the near future. Occasionally this guidance does not involve any new money printing at all, but is simply an affront to consumer psychology. The effects are either caused by consumers believing that short-term rates are lower and then rates will fall (good effect), or if consumers read between the lines and see a weak economy that can't stand for new loans or investments and the rates fall temporarily (poor effect).
So, who is at fault? Substandard lending and low credit worthiness in our most recent recession of 2007-2009 is the main culprit. Banks became greedy, for lack of a better word, and investors saw junk bonds flood the market. Now, the banks that are left in the economy are finding renewed life because of QE. Some say it's a reward and a slippery slope leading toward the next recession.
Some economists believe that targeting Nominal (gross) GDP rather than future inflation will improve policy both in practice and in consumer confidence. I tend to agree but QE still must take place.
Many consumers wonder why have any monetary policy in the first place, because after all, this is free enterprise society. If the economy simply was let go, interest rates would sky rocket since the banks would have such a low money supply. Less money means a higher cost to obtain loans. The consumer has lost confidence in banks after the recession and banks were sliding into devastation before QE. America needs loans and the government needs banks to assign value to the dollar. What happens when the dollar is not responsible for value? That's another article you can see here: http://techjamesesler.blogspot.com/2013/06/digital-currencies-end-to-conspiracies.html
These days cash is argued as the best investment vehicle since the state of the economy has engendered fear and may confuse investors. This is not in your best interest, since guaranteed inflation will reduce the value of our dollar and thus you are losing money by saving rather than using investments to hedge inflation. Our Central Banks are approaching QE in the amount of $4 Trillion, which theoretically will reduce long-term interest rates almost 1.5%. The Central bank has almost $2 trillion currently in reserve. Since 2009, interest rates have been very near the zero lower bound and the S&P 500 has increased 150%.
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