November 1st, 2010
12:24 PM GMT
Hong Kong, China (CNN) - Markets all over the world are watching the Fed. The U.S. Federal Reserve is expected to take further action this week to support America's weak recovery. Investors are waiting for a second round of "quantitative easing" - what is being nicknamed "QE2."
Quantitative easing is a way central bankers can help boost economic growth. It's a little controversial, but the idea is to create money out of nothing and to get it in the hands of bankers, businessmen, and consumers to spur economic activity.
So how does it work?
Well, the central bank kind of goes shopping. The Fed, for example, will knock on the door of a bank and offer to buy up government bonds that the bank can't unload at a decent price. The Fed buys the bonds with cash it's created and - voila! - the bank now has a pile of cash. The hope is that the bank lends out the money so companies can grow and consumers spend.
The problem is QE doesn't always work. Banks sometimes get nervous and hoard the cash. The Fed though is running out of options. It's hoping that QE2, like a cruise liner, will help transport its passengers through this rough economic patch.
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