How Quantitative Easing Works
Where does the Fed get the money to buy Treasuries?
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1
Initial State
- The Fed wants to buy $100 of Treasury bonds to inject liquidity into the economy.
- Commercial Bank holds $100 in Treasuries and has $200 in reserves at the Fed.
- An Asset Manager also holds $100 in Treasuries, with $100 cash deposited at the bank.
🏛️
Federal Reserve
government
Balance Sheet
in $000s
Assets
Treasuries
400
Total400
Liabilities
Bank Reserves
200
Currency
200
Total400
Equity
Total0
🏦
Commercial Bank
institution
Balance Sheet
in $000s
Assets
Reserves at Fed
200
Treasuries
100
Loans
200
Total500
Liabilities
Deposits
400
Total400
Equity
Capital
100
Total100
👤
Asset Manager
person
Balance Sheet
in $000s
Assets
Bank Deposits
100
Treasuries
100
Total200
Liabilities
Total0
Equity
Net Worth
200
Total200
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