Since you are already at ZLB, buying treasuries doesn't have any important effect aside from transferring money to the government. So all this does is take money from banks and transfer it to the government. Assuming the government already has a reasonably efficient plan for spending the money, this shouldn't immediately move the economy deeper into recession. However, you've just transferred the flow of capital from the relatively efficient market mechanism to the vagaries of bureaucracy and politics. All businesses that don't get an immediate government hand-out are going to feel the squeeze of tightening credit from banks. This will almost certainly reduce both domestic and foreign investment. So at best you've made no progress, but saddled the government with extra debt. At worst you've eroded faith in financial institutions in a way that will cripple business activity and extend or deepen recessionary conditions.

Gregory Burns yes but most studies find that 1) there was no increse in lending behavior during QE rounds, such as in the BoE's case and american Q2, there is a disagreement on american Q1, 2) even those who find that there was a significant correlation, the increase in lending was very small.

this could indicate that banks are withholding capital to elevate their financial positions , thus increasing the reserves and lending through the goverment may be more efficient

So your argument is that if the situation is the same as the Financial Crisis (that's a big if!), then the banks are going to increase their reserves regardless of central bank policy. Under QE, the central bank subsidizes this, and lending remains stable. Under the proposed plan, the banks increase reserves by curtailing lending. You've added a new twist by proposing that the government loan, rather than spend the money, but I think it highlights the problem with the plan. Governments aren't banks, and they don't loan money as a multiple of their reserves. The money the government returns to the economy under this plan will always be a fraction of the quantity the banks are withholding to increase their reserves. Of course, the central bank could cut out the middle-man and make the loans, but that's a whole different question of proper central bank activity.

Gregory Burns if you were to look into most central banks' balance sheets you will notice an increse in banks' voluntary reserves which 1) the goverment most pay back in interest doubling the bill of QE 2) its unused rescources

as for the role of central banks, the independence between monetary and fiscal policy is starting to dissapear as desperate times require desperate measures

Consider the elements of realism and practicality which should normally be the basis for any answer to this type of issue. Questions will need to be asked and answered. Such as:

- To whom do the mentioned reserves belong? If they are the "reserves of the commercial banks", then it is the banks' themselves who would have to accept that these, in some form or other (e.g repayable loans? compulsory deposits with the central bank? how else?), pass on to the central bank. This may often necessitate apposite legislation, and from that point we can easily see that the matter moves into the realm (certainly not mine!) of politics.

- What is likely to be the reaction of stakeholders in the banks to such proposals?. Shareholders, for one group of stakeholders, always like to have their banks as strong as possible.....they will (even at the often uneducated shareholder levels) probably frown at their bank being in any way denuded of resources that they might see as weakening "their" bank....

- In trying to get such action going the central bank must also make a very good case with the general public that in fact the quantity easing - essentially always seen as more pumping of government money into an often "failing" economy....that such is in fact absolutely (for which read "do it or die"!) necessary measure.

How many people will consider this as a "Robbing Peter to Pay Paul" type of monetary policy?

So the sum conclusion is to say that, yes, there may be times when such may be, at least prima facie, necessary to get an economy going, but implementing it is by no means easy on a practical level.

Similar solutions are practiced in some central banks. In a situation of an increase in systemic credit risk, in a period of an economic downturn, in a situation of a possible development of a financial crisis, the central bank may purchase from commercial banks assets characterized by the highest level of credit risk, including non-performing, defaulted loans, and also paracredit financial instruments that have been reassigned to lost receivables and worthless securities. Moreover, in some countries the central bank purchases treasury bonds directly, thus introducing additional money into the economy. As long as the economic situation is normalized, a low level of inflation, a stable exchange rate, an optimal level of cross-border trade, etc., the above-mentioned interventionist actions of the central bank are possible when the national central bank conducts a full monetary policy. It happens that the aforementioned interventionist actions of the central bank implemented as part of a soft monetary policy are carried out on a larger scale in periods of deep economic downturn in the national economy. In such a situation, these actions play the role of anti-crisis actions of the central bank.

Best wishes,

Dariusz Prokopowicz

Dear, A very good explanation of Quantitative Easing by central Banks in the USA, Britain, and the European Central Bank is found in the book by "Shahin Wassim and El-Achkar Elias: Banking and monetary policies in a changing financial environment: A regulatory approach", Routledge, Taylor and Francis, 2017.

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J.A. Consiglio thank you for you answers as it illuminated the risks that accompany such scheme, while i agree with you that it is unjust policy, it is a necceary evil, for the purpose of this scheme it to redusturbute wealth from those who have unused capital to those who have fallen into poverty

Dariusz Prokopowicz i appreciate your answer, but there are two points:

1-buying risky assets from commercial banks will only levarage their postions, but these rescoucres will not be used efficintly as studies show that the banks lending behaviour does not signifcaly increase when more money is pumped into the economy, in other words, bank are too afraid to lend to the risky (and most needy) costumers

2-if the CB buys treasury bonds from the goverment, it will be a QE in the case of floating regimes, but for fixed or capital dependet countries this is just debt issuance that the goverment must pay as these countries cant just print money. what im proposing here is zero interest debt from the unused reserves that the CB usually pays for them.

Wassim Shahin while i do agree that i may have shortcomings, what i propose here is a plan to finance the budget not through currency issuance but through the usage of unused resources, i used QE more like a figure of speech as both approaches uses central banks to achive thier goals, but the diffrence is that QE is unuasable in fixed currency regimes and capital dependent markets while the proposed scheme is risky but applicable