COVID and the Central Banks


Welcome, welcome to One Minute Crypto! I’m your host, Chronos, and today, part 3
of our series on COVID-19. We want to get a handle on exactly how central
banks like the Fed, Bank of Japan, and the ECB are handling this crisis, and whether
or not their actions will cause price inflation. We’re going to focus on the United States
for this video, although things are looking pretty similarly around the globe. The Federal Reserve dropped their Federal
Funds Rate from around two percent to pretty much zero. This is the interest rate at which banks borrow
and lend from one another on an overnight basis. When it drops, it makes it cheaper to borrow,
which increases the money supply, which can increase price inflation. But another huge action that the Fed and other
central banks are taking is called Quantitative Easing, or QE. This is basically creating money out of nothing
and buying investments with it, typically government bonds. When this happens, the investors that were
going to make those purchases have to put their money elsewhere, so this pushes new
money into the economy. The Fed recently announced $700 billion dollars
of new QE, and they’ve positioned themselves for unlimited QE in the future. But at the same time, the US government is
looking to send $1200 each to most Americans, to help combat the coming recession from COVID-19. The total cost of this move is over a trillion
US dollars, so where are they going to get the money? That’s right, in the end, it comes from the
Fed. The Treasury, which is part of the US government,
issues bonds, which is how it borrows money. And the Fed buys those bonds with new money. Finally, the Treasury takes that money and
sends it into the economy. So with all this new money flying around,
it brings us to the big question: will we see massive inflation, price increases on
everything from bread to bitcoin? I actually think maybe not, at least, not
at first. To find out why, let’s jump to the next episode. Post any question or comments below the video. I’m Chronos. Thanks for watching!

4 Comments

Add a Comment

Your email address will not be published. Required fields are marked *