What do people mean when they talk about the central bank providing “cheap money”? What are the implications for the stock market?
Companies with existing borrowings (where borrowings are on variable interest rates) or in the case with fixed interest rates - companies that get new borrowings - would pay less interest on these borrowings, so their cost will go down and profits up, making them more attractive to investors.  So, in general lower interest rates will make the share market a more attractive investment (than some alternatives) as investors are willing to take on more risk for potentially higher returns. This will usually result in the stock market rising as it is currently in the US. EDIT: The case for rising interest rates A central bank's purpose when raising interest rates is to slow down an economy that is booming. As interest rates rise consumers will tighten up their spending and companies will thus have less revenue on top of higher costs for maintaining existing borrowing (with variable rates) or new borrowing (with fixed rates). If rates are higher companies may also defer new borrowings to expand their business. This will eventually lead to lower profits and lower valuation for these companies. Another thing that happens is that as banks start increasing interest for saving accounts investors will look for safety where they can get a higher return (than before) without the risk of the stock market.  With lowering profits and valuations, and investor's money flowing out of shares and into the money market, so will company share prices drop (although this may lag a bit with the share market still booming due to greed. But once the boom stops watchout for the crash). "There are a couple of different things that could be referenced by ""cheap money"": The money supply itself - This is the Federal Reserve printing more money which could devalue the existing US dollars and thus make the dollars even cheaper since there would be more of them. Interest rates - Currently in the US interest rates are rather low which means that borrowers could possibly get good rates on that money thus making it relatively cheap.  Compare current interest rates to the early 1980s and there is a major difference. In terms of implications on the stock market, there are a couple that come to my mind: Investment options - With low interest rates, cash and bonds aren't necessarily yielding that much and thus some people may be more likely to invest elsewhere with stocks being an option.  Thus, there may be some people that would rather invest in stocks than hold their investments in lower-yielding options. Corporate spending - If rates stay low, then for companies with good financial track records, they could borrow money to expand operations rather than sell more stock and thus there may be companies that borrow to grow so that they take advantage of these interest rates." "Newspapers write a lot about the central bank stopping ""cheap money"" in the US. What is that exactly and what are the implications for the stock market? An interest rate is simply defined as the price of money.  So if money is cheap, it must mean there is a low interest rate compared to normal.  If milk is cheap, we're comparing it to past prices or prices at competitors' stores.  Same with money. I don't think its fair to say just because the supply of dollars rises that the value of dollars will go down.  Value or price is determined by supply and demand, not just supply.  Its possible for the demand for dollars to be stronger than the rising supply, which would drive the price higher.  A good example of this is to look at the value of the dollar recently.  The Fed has been printing $85 billion per month, yet the value of them is going up compared to foreign currencies, gold, and just about everything.  Why? Because the Fed has merely threatened to stop, but it hasn't stopped.  That alone was enough to increase demand above supply.  So if you want to know what will happen, take a look at what IS happening. When cheap money ends, the value of the dollar will go up, interest rates will go up.  This will be a drag on the economy.  It will be more difficult for companies to show profits and earnings should decline.  In addition, those who have grown accustom to the easy money and have over-leveraged themselves (ie REITs) could go bankrupt."
"**Are you nuts?**  &gt;*""Are you talking about TARP because that was paid back early and at 6.2% interest, the gov't made money on that bailout. The auto bailout however lost the gov't billions at the taxpayers expense and the bondholders got screwed over and the unions made out like bandits. Your title just shows how bias and uneducated you are on the subject. ""*  I'm talking about the GFC/Global Financial Crisis. In 2008.   -------------QUOTED TEXT--------------  http://en.wikipedia.org/wiki/Financial_crisis_of_2007%E2%80%9308  This article is about the financial crisis that peaked in 2008. *For the global recession triggered by the financial crisis, see [Great Recession](http://en.wikipedia.org/wiki/Great_Recession).*  The financial crisis of 2007–2008, also known as the Global Financial Crisis and 2008 financial crisis, is considered by many economists the worst financial crisis since the Great Depression of the 1930s.[1]   It resulted in the threat of total collapse of large financial institutions, the bailout of banks by national governments, and downturns in stock markets around the world. In many areas, the housing market also suffered, resulting in evictions, foreclosures and prolonged unemployment. The crisis played a significant role in the failure of key businesses, declines in consumer wealth estimated in trillions of U.S. dollars, and a downturn in economic activity leading to the 2008–2012 global recession and contributing to the European sovereign-debt crisis.[2][3] The active phase of the crisis, which manifested as a liquidity crisis, can be dated from August 9, 2007, when BNP Paribas terminated withdrawals from three hedge funds citing ""a complete evaporation of liquidity"".[4]  The bursting of the U.S. (United States) housing bubble, which peaked in 2006,[5] caused the values of securities tied to U.S. real estate pricing to plummet, damaging financial institutions globally.[6][7] The financial crisis was triggered by a complex interplay of policies that encouraged home ownership, providing easier access to loans for (lending) borrowers, overvaluation of bundled subprime mortgages based on the theory that housing prices would continue to escalate, questionable trading practices on behalf of both buyers and sellers, compensation structures that prioritize short-term deal flow over long-term value creation, and a lack of adequate capital holdings from banks and insurance companies to back the financial commitments they were making.[8][9][10][11] Questions regarding bank solvency, declines in credit availability and damaged investor confidence had an impact on global stock markets, where securities suffered large losses during 2008 and early 2009. Economies worldwide slowed during this period, as credit tightened and international trade declined.[12] Governments and central banks responded with unprecedented fiscal stimulus, monetary policy expansion and institutional bailouts. In the U.S., Congress passed the American Recovery and Reinvestment Act of 2009.  (continued- thats just the first two paragraphs)" It was the sole creditor we're trying to avoid here is what I meant to say, not the broker him/herself.  The reason a firm might extend their debt would be to extend their credit into monetary value, in the scenario I just discussed, and it would more often be the more well known firms that would be the most likely to provide a Bond-Money Supply--Think IBM Bonds, Google Bonds, Cheese Board Collective Bonds, Tesla Motor Bonds, GE Bonds, etc.  All these firms would find a way to apply their bond funds in a way that would expand their output and henceforth make repaying the bonds much more likely, just like a normal firm would today.  The only difference is that in the mean time, that bond becomes a monetary commodity which people can trade for goods and services until it is repaid. Once repaid/neutralized, people can see that the bond is worth using and the demand for that bond as money will increase, just like how the demand for money will increase and that prompts a normal central bank to print more money.  Which means, the firm is safe to take on stable debt again which people can reuse again.  The major difference here is that we have a money supply that you can choose to participate in or not, and it is up to the consumers of that currency how the money supply flows, as opposed to a central authority.  It does matter who's first in line to get the new money in any economy, and with multiple policies competing, power is less concentrated:  http://www.youtube.com/watch?v=hx16a72j__8 "When people (even people in the media) say: ""The stock market is up because of X"" or ""The stock market is down because of Y"", they are often engaging in what Nicolas Taleb calls the narrative falacy. They see the market has moved in one direction or another, they open their newspaper, pick a headline that provides a plausible reason for the market to move, and say: ""Oh, that is why the stock market is down"". Very rarely do statements like this actually come from research, asking people why they bought or sold that day. Sometimes they may be right, but it is usually just story telling. In terms of old fashioned logic this is called the ""post hoc, ergo proper hoc"" fallacy. Now all the points people have raised about the US deficit may be valid, and there are plenty of reasons for worrying about the future of the world economy, but they were all known before the S&P report, which didn't really provide the markets with much new information. Note also that the actual bond market didn't move much after hearing the same report, in fact the price of 10 year US Treasury bonds actually rose a tiny bit. Take these simple statements about what makes the market go up or down on any given day with several fistfuls of salt." "I switched to the buy side, here is some things you should do.  First of all, you already had 6 interviews.  I would say the HR people are going to be less helpful because its harder to differentiate yourself.  If you are talking to an investment portfolio, and they ask you any of type of...  What are you interested in? How did you get into this space?  You better have multiple stock pitches lined up.  For example, on the the first question  I'm interested in IM because I was exposed at an early age by my parents.  Although I didn't know what I was doing, I kept following (STOCK 1, you're first crack in the doorway).  *more about your background stuff*  In fact, STOCK 1 turned out to be one of my best/worst trades.  I thought it was going here and it went there due to this and that and etc...*more info about stock 1*  Now, I like to look at names such as STOCK 2-5 because they are show (this multiple or that yield or these moats, depending on who you are talking to).  That is how you get a job through an informational interview.    As for how you get an informational interview?  Go run through linkedin.  Sort for investment management.  Any person you have a 2nd degree network or Group network is fair game.  Just shoot your common friend an email (hey whats up, i saw you were friends with X, i'm really interested in his company can you put me in touch).  Although the end person may never respond, the connection is like almost guaranteed to help (assuming you're a nice friendly person).  Recruiting for IM is a full time job.  Even other industries as well.  My roommate graduated Haas Business Undergrad program (top 3 in the country) in TWO years (not 2 letters and science + 2 business, but 2 total years) at 19 years old, took him a full year of recruiting and paying his own way out to NY to meet people to land an banking job (due to similar circumstances, as he was fully out of school and wasn't in the normal rotation).  What really concerns me is you keep saying ""analysis.""  It makes me think that you have no clue what you want to do.  Tell me what analysis means.  If you want to recruit for IM, you better be watching the markets everyday (esp if you are unemployed), have opinions on lots of companies, etc." Can you isolate the market impact to just the Fed's quantitative easing?  Can you rule out the future economic predictions of low growth and that there are reasons why the Fed has kept rates low and is trying its best to stimulate the economy?  Just something to consider here. The key is to understand what is the greater picture here as well as the question of which stock market index are you looking at that has done so badly.  Some stocks may be down and others may be up so it isn't necessarily bad for all equally. "I've mostly seen this term peddled by those with large portfolios in gold/commodities. The incentive for these guys, who for example may have a large portfolio in gold, is to drive demand for gold up - which in turn drives the value of the gold they're holding up and makes their assets more valuable. The easiest way to get a large amount of people to invest in gold is to scare them into thinking the whole market is going to fall apart and that gold is their best/only option.  I personally think that the path we're on is not particularly sustainable and that we're heading for a large correction/recession anyways - but for other reasons.  **Example:**  [Peter Shiff YouTube Channel called ""The Economist"" with conspiracy videos](https://www.youtube.com/user/PeterSchiffChannel/videos)  [Actual ""The Economist"" magazine researching the market](https://www.youtube.com/user/EconomistMagazine/videos)  (edit: formatting)" Thanks. It has taken me some time to understand how all this works, and there are still many gray areas I want to understand further.  The Fed interest rate is the rate charged by banks to loan to each other to balance overnight reserves but only using the reserves they hold at the Fed. That adds no new money to the system, but increases the money multiplier a little since perhaps more loans can be made.   Basically one bank with excess reserves can loan to another bank that needs reserves. The Fed injects no money here, only sets the rate for banks to do this with each other.  When the Fed buys securities that effectively adds that many more dollars into circulation, which then gets hit by the money multiplier, adding a lot of new liquidity.  I think historically the latter tracks increases in the money supply much better than the former. I think the St. Louis Fed has records online for all this dating back to the 1940's or so. A ton of good comments and a lot of innocent comments.  Basically with fractional reserve banking, the creation of money out of nothng to increase the money supply is very simple to do and happens every second.  But like anything leveraged, it's great in good times adn horrible is bad times.  Contraction is magnified so if I pull out $1, the banks available funds are decreased by a multiple of that (depending on the reserve requirements and capital requirements).    SO to answer you're question, the money gets destroyed and disappears and a portion remains.