- This is the script of CNBC's news report for China's CCTV on December 16, Wednesday.
Welcome to CNBC Business Daily, I'm Qian Chen.
When US Federal Reserve chairwoman Janet Yellen pulls the trigger on an historic rate rise this week, the FIRST time in nearly a decade, many will see it as a signal that the US economy is strong enough to cope with higher borrowing costs.
At this moment, it would be interesting to look back... what brought us here?
Let's start with the first round of QE.
Started in November 2008, the round lasted for 17 months.
Each month, the Fed spent $100 billion to purchase MBS.
From November 2010 to June 2011, the second round lasted for seven months, and the Fed purchased US treasuries by spending $85 billion in each. Don't forget that this time, the Fed was purchasing different securities -- treasuries.
Afterall, was QE1 a success? Not everyone was in agreement.
You might have heard again and again, that the banks were able to get rid of toxic securities for cash but had no incentive, and no requirement, to lend it out.
More than a year after QE2 was complete, the Fed went further and announced QE3.
Again, the Fed bought up both MBS and treasuries, much as before, and the degree of spending per month remained at $85 billion.
Something interesting, indeed, was that QE3 was to work in tandem with Operation "Twist".
The Fed sold the short term treasuries they had and use the funds to buy up longer term securities. The idea behind the exchange was to flood the market with the former, and thereby cause short term interest rates to rise; by buying up longer term securities they would also do the opposite, causing long term interest rates to fall.
The "twist" in the naming of the operation came from the visible twist in the yield curve that was expected to result.
Dd it work? Actually, it somehow did.
he yield on 10-year treasuries fell, and as a result, the housing market bounced back somewhat, as did bank lending.
Critics point out the stock markets soaring more than 160% during this period, which helped the rich, but did little for middle America or pensioners relying on fixed interest for investments.
During QE2, the Fed was buying up treasuries instead of MBS meant that the money was again mostly sitting in banks, and adding a buffer to their reserves.
However, some would defend the Fed, saying that asset prices are just a base measure of an economy's stability, and pointed out that interest rates were indeed pushed lower to stimulate lending and help the housing market.
CNBC's Qian Chen, reporting from Singapore.
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