B01BECO107: Response to the Global Financial Crisis (GFC) - Business Economics

Internal Code: MAS6292

Business Economics:

Quantitative Easing (QE) was essentially a mechanism implemented by the American, British and European central banks in response to the Global Financial Crisis (GFC) since 2008. The central banks’ role was to pump more money into the financial system in hope that could stimulate their economies. As a result, interest rate worldwide plummeted (until recently it is U.S interest rate was zero %) and encouraged businesses and individuals to borrow money at low cost. With an abundant of credit available, it encouraged and pushed businesses and individuals into higher debts and therefore more risks. The general fear is that one-day interest rate will rise which can lead to another round of financial crisis which could be worse than the one in 2008. Question: “The QE has been successful in stimulating the economy globally since 2008 and nothing to worry about or the whole QE is a toxic scenario which allowed asset prices to rise to an unsustainable level which will result in a catastrophic financial time bomb waiting to explode”. Discuss the statement based on your understanding of QE.