<p>1) In principle, there is nothing material to stop the central banks. Apparently, during the great recession in the 1930's in the US, the fed bought even stranger stuff. They could go domestic bonds, equities, houses, etc, and then they could go to foreign assets.</p>

<p>2) No, they cannot literally go bankrupt because they can always print money. Some banks have in fact begun to consider printing money as a way to forcefully lower the value of their currencies. </p>

<p>3) My guess is that the issue is really the opposite one. Banks are doing too well: they buy assets, and those assets do well, then the bank is actually backing up each unit of currency with <em>more</em> value than before. It's hard to create inflation like that.</p>

<p>4) The practical limits are twofold: it might be politically unsustainable. A) Sooner or later the public thinks this is useless and they elect a new central banker or ask the president to appoint a new one. B) It might create all kinds of strange incentives. For example, you might want to bribe the central bank reserve's managers to buy <em>your</em> company's assets.</p>

CC BY-SA 4.0
2016-04-25T20:06:22.433Z
2020-06-12T05:20:53.627Z
2020-06-12T05:20:53.627Z
Fix.B.
<p>I have been reading recently on the quantitative easing programmes by the ECB and the BOJ, see <a href="http://www.cnbc.com/2016/04/07/what-the-bank-of-japan-boj-will-do-now-that-negative-rates-have-disappointed.html" rel="nofollow">http://www.cnbc.com/2016/04/07/what-the-bank-of-japan-boj-will-do-now-that-negative-rates-have-disappointed.html</a>, and, <a href="http://www.bloomberg.com/news/articles/2016-04-21/ecb-to-start-buying-corporate-bonds-in-june-as-part-of-stimulus" rel="nofollow">http://www.bloomberg.com/news/articles/2016-04-21/ecb-to-start-buying-corporate-bonds-in-june-as-part-of-stimulus</a>.</p>

<p>The ECB will be expanding its current programme to include corporate bonds and  it is being suggested that the BOJ may give up on negative interest rates and possibly could buy japanese equities instead. It seems that these central banks are just working their way up the risk asset spectrum. My question is where do these asset buying programmes stop (penny stocks/distressed debt?)? Also what happens to these assets, surely if they sit on the central banks books it could go bankrupt like a commercial bank? Moreover, what could cause these asset buying programmes to be abandoned/fail? </p>

CC BY-SA 3.0
2016-04-23T23:02:22.807Z
Well my best guess is: it stops where they say it stops... But then comes the question of credibility !
Alexis L.
<macroeconomics><monetary-policy><central-banking><bonds><quantitative-easing>
Limits to Quantitative Easing Programmes
Trajan
# Limits to Quantitative Easing Programmes

(Asked by: username_0 on 2016-04-23)

I have been reading recently on the quantitative easing programmes by the ECB and the BOJ, see <http://www.cnbc.com/2016/04/07/what-the-bank-of-japan-boj-will-do-now-that-negative-rates-have-disappointed.html>, and, <http://www.bloomberg.com/news/articles/2016-04-21/ecb-to-start-buying-corporate-bonds-in-june-as-part-of-stimulus>.

The ECB will be expanding its current programme to include corporate bonds and it is being suggested that the BOJ may give up on negative interest rates and possibly could buy japanese equities instead. It seems that these central banks are just working their way up the risk asset spectrum. My question is where do these asset buying programmes stop (penny stocks/distressed debt?)? Also what happens to these assets, surely if they sit on the central banks books it could go bankrupt like a commercial bank? Moreover, what could cause these asset buying programmes to be abandoned/fail?

**Tags:** macroeconomics, monetary-policy, central-banking, bonds, quantitative-easing
> **Comments:**
> **username_1**: Well my best guess is: it stops where they say it stops... But then comes the question of credibility !  

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## 1 answers

### Answer by username_2 on 2016-04-25. Score: 2 | Accepted answer

1) In principle, there is nothing material to stop the central banks. Apparently, during the great recession in the 1930's in the US, the fed bought even stranger stuff. They could go domestic bonds, equities, houses, etc, and then they could go to foreign assets.

2) No, they cannot literally go bankrupt because they can always print money. Some banks have in fact begun to consider printing money as a way to forcefully lower the value of their currencies.

3) My guess is that the issue is really the opposite one. Banks are doing too well: they buy assets, and those assets do well, then the bank is actually backing up each unit of currency with *more* value than before. It's hard to create inflation like that.

4) The practical limits are twofold: it might be politically unsustainable. A) Sooner or later the public thinks this is useless and they elect a new central banker or ask the president to appoint a new one. B) It might create all kinds of strange incentives. For example, you might want to bribe the central bank reserve's managers to buy *your* company's assets.


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