Little overview of quantitative easing

SO I can't remember where I got this material so don't sue me. I will Italics it for whoever came out with the ideas.

Quantitative Easing: used to increase the money supply by buying government securities or other securities from the market. [Investopedia]

Q: What will happen to the government securities once rates increas? Once the economy recovers and stocks increase?

Quantitative easing will flood financial institutions with capital in an effort to promote increased lending and liquidity. Central banks tend to use quantitative easing when interest rates have already been lowered to near 0% levels and have failed to produce the desired effect.

The major risk of quantitative easing is that although more money is floating around, there is still a fixed amount of goods for sale. This will eventually lead to higher prices or inflation.

So this expansionary monetary policy that is happening in key global economies of the US, China, Japan, and Europe will place increased pressure on the output gap (Actual output - potential output). BUY! is the message that central banks are stating worldwide, yet the only to-do shopping lists seem to be focused around commodities, bonds, stocks, and emerging market economies. INVESTMENTS have recovered but not the fundamental consumer piece that fuels the economy. Gilts, for example, are bonds issued by the governments of the UK, South Africa, or Ireland. 2/3 of gilts are held by insurance companies and pension funds.

In 2009, large quantities of filts have been purchased by the Bank of England under its policy of quantitative easing.

In essense, this represents a benign facade of investor enthusiasm in the markets, fueled by taxpayers (government securities bought by the government!?) and insurance. Insurance, on an industry outlook worldwide view, will experience very healthy returns some of the biggest players lost over 100 million euros due to record defaults this past year. Healthy premiums and a heightened need for security will raise revenues and defaults will be stagnant for the next few years. So they are in a stable position to purchase these securities without taking on additional debt.