<p>For considering a question like this, because the Federal Reserve remits seigniorage to the Treasury, it can be helpful to integrate the balance sheet of the central bank and the treasury and consider them as a single entity. Since QE involves the purchase of higher interest rate long dated debt and financing that purchase with lower interest rate central bank reserves, it has the effect of reducing the federal government's costs to finance its debt. Since debt is a major category of spending, <a href="https://www.thebalance.com/interest-on-the-national-debt-4119024" rel="nofollow noreferrer">as of 2018 about 6-7 percent of the budget</a>, is it fair to say that, all else equal, that the deficit would have been larger without QE, because all other spending would be the same except debt service which would be smaller. However, the hope of QE was that it would improve the economy, which would raise government revenues (higher tax collections) and reduce government spending (say from lower unemployment, disability, and social security benefits), which would further reduce the deficit. The size of these latter effects seem to be in dispute. Some people think that QE had little macroeconomic consequence (<a href="https://onlinelibrary.wiley.com/doi/full/10.1111/j.1468-0297.2012.02549.x" rel="nofollow noreferrer">The Macroeconomic Effects of Large‐scale Asset Purchase Programmes</a>) but others think they juiced GDP and presumably tax revenues by a substantial amount (<a href="https://onlinelibrary.wiley.com/doi/full/10.1111/j.1468-0297.2012.02555.x" rel="nofollow noreferrer">Assessing the Economy‐wide Effects of Quantitative Easing</a>, <a href="https://www.sciencedirect.com/science/article/pii/S109094431530137X#s0060" rel="nofollow noreferrer">Counterfactual analysis in macroeconometrics: An empirical investigation into the effects of quantitative easing</a>). </p>

<p>However, as a matter of political economy, it is possible that QE, by lowering the cost of debt service, makes deficit financing look relatively more attractive. This should cause some increase in government spending (because it is cheap) and therefore an increase in the deficit. This suggests that the theoretical effect of QE on the deficit is ambiguous. </p>

CC BY-SA 4.0
2019-01-10T15:42:01.623Z
2019-01-11T12:56:52.040Z
2019-01-11T12:56:52.040Z
BKay
<p><a href="https://i.sstatic.net/5r6sK.png" rel="nofollow noreferrer"><img src="https://i.sstatic.net/5r6sK.png" alt="enter image description here"></a></p>

<p>The US Federal debt has only been increasing year on year... from 2009 - 2014 it increased from <span class="math-container">$10 trillion to $</span>18 trillion. I don't know why you believe it steadily fell over this time.</p>

CC BY-SA 4.0
2019-01-10T10:10:47.887Z
Who said anything about the federal debt?
Giskard
CC BY-SA 4.0
2019-01-10T07:03:58.340Z
2019-01-10T07:03:58.340Z
user20724
<p>No, the deficit is not getting larger due to QE. Certainly not directly, because that's impossible, and also not indirectly, either.</p>

<p>Quantitative easing is a policy of purchasing government bonds with the intent of decreasing yields while injecting cash into the economy. It affects only the demand for government bonds, not the supply of bonds created by government borrowing. </p>

<p>This shouldn't be a surprise, as the monetary authority (the central bank) and the fiscal authority (Congress) are independent of one another. Congress cannot (without rewriting the Federal Reserve Act) directly control monetary policy, nor can the Fed force the government to borrow more.</p>

<p>Indirectly, Congress could choose to borrow more as a result of QE, due to lower yields on government debt, as the lower debt payments make it cheaper to do so. However, there's not much evidence that this is the case. </p>

<p>The deficit has fallen since 2009 (when it significantly increased due to passage of a <a href="https://en.wikipedia.org/wiki/American_Recovery_and_Reinvestment_Act_of_2009" rel="nofollow">large-scale stimulus program</a> consisting primarily of tax cuts but also including direct federal spending, in response to the financial crisis and recession), both <a href="https://fred.stlouisfed.org/series/FYFSD" rel="nofollow">in nominal term</a>s and <a href="https://fred.stlouisfed.org/series/FYFSDFYGDP" rel="nofollow">as a percent of GDP</a>. As a percentage of GDP (which is the appropriate long-term comparison, as taxable income is the best indication of a nation's ability to repay a debt), the deficit returned to a normal historical range by 2014.</p>

<p>So it's difficult to conclude even that QE encouraged spending, thereby increasing the deficit indirectly. Given two facts— that the Federal Reserve's QE programs started in earnest in 2009 and continued until late 2014, and that the federal deficit steadily fell during this time— it would be very strange indeed to conclude that QE had increased the deficit.</p>

CC BY-SA 3.0
2016-09-18T22:12:01.680Z
2016-09-18T22:12:01.680Z
dismalscience
<p>Is the deficit getting larger because of QE? </p>

CC BY-SA 3.0
2016-09-16T02:16:19.660Z
I think you misspelled "burger". It is written with an "r" instead of a "d". But I am unsure whether there is actually a burger deficit in the US, and whether QE has an effect on it. Or did you mean a "badger" deficit?
HRSE
CC BY-SA 3.0
2016-09-16T02:40:52.687Z
Well done, I fixed it.
Brian Turner
CC BY-SA 3.0
2017-07-03T14:46:03.223Z
Can you provide further clarification on why you believe the budget deficit returned to a normal range in 2014. The graph you included seems to indicate our deficits have grown radically in the last 14 years as compared to the previous 100 years. When will the federal borrowing level from continued deficits overwhelm our ability to repay the debt?
Steve Rosvold
<money-supply><federal-reserve><quantitative-easing><national-bank>
What is the effect of Quantitative Easing on the US budget deficit?
Brian Turner
# What is the effect of Quantitative Easing on the US budget deficit?

(Asked by: username_0 on 2016-09-15)

Is the deficit getting larger because of QE?

**Tags:** money-supply, federal-reserve, quantitative-easing, national-bank

> **Comments:**
> **username_1**: I think you misspelled "burger". It is written with an "r" instead of a "d". But I am unsure whether there is actually a burger deficit in the US, and whether QE has an effect on it. Or did you mean a "badger" deficit?  
> **username_0**: Well done, I fixed it.  
> **username_2**: Can you provide further clarification on why you believe the budget deficit returned to a normal range in 2014. The graph you included seems to indicate our deficits have grown radically in the last 14 years as compared to the previous 100 years. When will the federal borrowing level from continued deficits overwhelm our ability to repay the debt?  

---

## 3 answers

### Answer by username_6 on 2016-09-18. Score: 4 | Accepted answer

No, the deficit is not getting larger due to QE. Certainly not directly, because that's impossible, and also not indirectly, either.

Quantitative easing is a policy of purchasing government bonds with the intent of decreasing yields while injecting cash into the economy. It affects only the demand for government bonds, not the supply of bonds created by government borrowing.

This shouldn't be a surprise, as the monetary authority (the central bank) and the fiscal authority (Congress) are independent of one another. Congress cannot (without rewriting the Federal Reserve Act) directly control monetary policy, nor can the Fed force the government to borrow more.

Indirectly, Congress could choose to borrow more as a result of QE, due to lower yields on government debt, as the lower debt payments make it cheaper to do so. However, there's not much evidence that this is the case.

The deficit has fallen since 2009 (when it significantly increased due to passage of a [large-scale stimulus program](https://en.wikipedia.org/wiki/American_Recovery_and_Reinvestment_Act_of_2009) consisting primarily of tax cuts but also including direct federal spending, in response to the financial crisis and recession), both [in nominal term](https://fred.stlouisfed.org/series/FYFSD)s and [as a percent of GDP](https://fred.stlouisfed.org/series/FYFSDFYGDP). As a percentage of GDP (which is the appropriate long-term comparison, as taxable income is the best indication of a nation's ability to repay a debt), the deficit returned to a normal historical range by 2014.

So it's difficult to conclude even that QE encouraged spending, thereby increasing the deficit indirectly. Given two facts— that the Federal Reserve's QE programs started in earnest in 2009 and continued until late 2014, and that the federal deficit steadily fell during this time— it would be very strange indeed to conclude that QE had increased the deficit.


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### Answer by username_3 on 2019-01-10. Score: 2

For considering a question like this, because the Federal Reserve remits seigniorage to the Treasury, it can be helpful to integrate the balance sheet of the central bank and the treasury and consider them as a single entity. Since QE involves the purchase of higher interest rate long dated debt and financing that purchase with lower interest rate central bank reserves, it has the effect of reducing the federal government's costs to finance its debt. Since debt is a major category of spending, [as of 2018 about 6-7 percent of the budget](https://www.thebalance.com/interest-on-the-national-debt-4119024), is it fair to say that, all else equal, that the deficit would have been larger without QE, because all other spending would be the same except debt service which would be smaller. However, the hope of QE was that it would improve the economy, which would raise government revenues (higher tax collections) and reduce government spending (say from lower unemployment, disability, and social security benefits), which would further reduce the deficit. The size of these latter effects seem to be in dispute. Some people think that QE had little macroeconomic consequence ([The Macroeconomic Effects of Large‐scale Asset Purchase Programmes](https://onlinelibrary.wiley.com/doi/full/10.1111/j.1468-0297.2012.02549.x)) but others think they juiced GDP and presumably tax revenues by a substantial amount ([Assessing the Economy‐wide Effects of Quantitative Easing](https://onlinelibrary.wiley.com/doi/full/10.1111/j.1468-0297.2012.02555.x), [Counterfactual analysis in macroeconometrics: An empirical investigation into the effects of quantitative easing](https://www.sciencedirect.com/science/article/pii/S109094431530137X#s0060)).

However, as a matter of political economy, it is possible that QE, by lowering the cost of debt service, makes deficit financing look relatively more attractive. This should cause some increase in government spending (because it is cheap) and therefore an increase in the deficit. This suggests that the theoretical effect of QE on the deficit is ambiguous.


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### Answer by username_4 on 2019-01-10. Score: -2

[![enter image description here](https://i.sstatic.net/5r6sK.png)](https://i.sstatic.net/5r6sK.png)

The US Federal debt has only been increasing year on year... from 2009 - 2014 it increased from $10 trillion to $18 trillion. I don't know why you believe it steadily fell over this time.

> **Comments:**
> **username_5**: Who said anything about the federal debt?  

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