Quantative Easing … what does it really mean?

Quantative Easing …. just what is it? In “Quantitative Easing Explained” the Bank of England says that direct injections of money into the economy, which they do mainly by buying gilts, is planned so:-
“… sellers of the assets have more money so may go out and spend it. That will help to boost growth. Or they may buy other assets instead, such as shares or company bonds. That will push up the prices of those assets, making the people who own them, either directly or through their pension funds, better off. So they may go out and spend more. And higher asset prices mean lower yields, which brings down the cost of borrowing for businesses and households. That should provide a further boost to spending.”

“In addition, banks will find themselves holding more reserves. That might lead them to boost their lending to consumers and businesses. So, once again, borrowing increases and so does spending.”

So the policy not only boosts liquidity but could and should reduce business costs of borrowing as it feeds through.

I am not going to consider the effects on inflation or the no doubt painful impact of unwinding QE. Its like death and taxes…inevitable!