Are we dangerously close to a collapse?
In this issue:
» Is nuclear energy becoming a liability than asset?
» This is a bigger game changer than multi-brand FDI, feels Biyani
» Jim Grant's very interesting take on gold
» Forbes best under a billion list has tainted Indian companies
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The prescription that it gave yesterday was no different. Observing that the US economy still faces a significant downside risk, it introduced a program whereby it will buy US$ 400 bn worth of long term treasuries and sell an equal amount of short term treasuries. Thankfully, this is not another quantitative easing where money is printed and shovelled into the system. But it does lead to keeping the cost of money i.e. interest rates lower than what they should otherwise be. This step, believes the Fed, will encourage businesses and consumers to borrow long term and thus, could well lead to an US economic recovery.
Low interest rates leading to healthy recovery? Well, isn't this the practice that caused the problem in the first place. The current US Fed may not agree to this. But Alan Greenspan, a former Chairman and the man who's suddenly grown new teeth of wisdom did drop a hint few days back when he said that businesses don't want to borrow because they are uncertain about the future. Thus, what the Fed is doing by intervening is that it is creating uncertainty and interfering in the market mechanism. The money is thus not finding its way into long term productive capital investments but is rather going into speculative activities where all that matters is short term profit and not the longer term wealth creation.
We are of the view that the latest move by the US Fed does not lead to debt reduction of any kind. And this is what the rationale should have been. What the economy needs is greater savings which can only happen when the cost of money i.e. interest rates are not tinkered with. But the US Fed seems oblivious to this fact. It seems hell bent on destruction and taking the US monetary system ever so closer to the point of collapse. Thankfully, India would not be as badly impacted and any knee jerk reaction by investors should be seen as a long term buying opportunity. Also, gold may see higher highs in the times to come.
Do you think the latest move by US Fed will yield the desired results? Share your views with us or you can also comment on our Facebook page.
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04:54 | Today's investing mantra |
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11 Responses to "Are we dangerously close to a collapse?"
Prashant Manohar
Sep 23, 2011Since Management Quality, Integrity and Governance are most important inputs for Investment Decision for Stocks, I suggest Equity Master should bring out a list of "TOP 200 Companies" ranked for these three attributes.
Ramakant Pareek
Sep 23, 2011On the topic whether the nuclear power plants are becoming sort of white elephants for a country like India; at present we have sufficient thorium, the essential raw material for nuclear power generation. In fact if we have adequate safeguard we will be energy efficient provided we also have required modern nuclear plants. France is an example. This fact is not covered in your point. All view should have been taken into account.
Most of people campaigning against nuclear power is either ignorant, non informed or playing under the hands of wrested interest.
Sthithapragnja
Sep 22, 2011Eq.Master Team,
In all humility fortified with ignorance in abundance
I MAY OBSERVE AS UNDER:
THE SITUATION YOU HAVE EMINENTLY ELUCIDATED ABOVE PROMPTS/REMINDS ME TO VISUALISE AN ANALOGOUS SITUATION WHICH FLASHED THROUGH MY SIMPLE MIND AS BELOW:
There is a huge Python which spots a slow moving object nearby. It starts to swallow the same. Unknowingly that happens to be its own tail ??
I hasten to conclude !!
Vinod Maheswari
Sep 22, 2011Certainly ridiculous, and move in wrong direction. Further buy this temporary steps they are exporting infilation to other developing nation and bring entire worlds economy in a fix and negative state.
chintan shah
Sep 22, 2011i believe though the problems have intensify over last couple of days as far as US and Europe is concern, but Greece going for default and US getting deeper and deeper into it's own debt,fiscal and employment issues will get better over next 12-18 months and infact, emerging economics specially India where, fiscal slippage, political issues, Election in the coming period and lower growth with higher inflation will create more problems than before.
let's cross the finger that we keep getting enough flows to finance our curent a/c or we will also be put on watch by rating agencies globally...
anupam garg
Sep 22, 2011US continues with its baseless measures and expects miracles...if this is how it keeps on continuing, US is only going to take global economy down along with itself
With such surplus of money supply in the global system, all that can be done with it is short term trading & betting...the enhanced volatility these days is just a beginning
shome suvra
Sep 22, 2011States' economic freedom is important where revenue deficits as % of Gross State domestic product is an important indicator. Some money should have been earmarked for battered states for improving their public expenditures.
Ganapathy Sastri
Sep 22, 2011First of all, the US Treasury and Fed should be regarded as one person with two pockets. You cannot transfer money from one pocket to another and become richer or poorer or less indebted. Fed buying debts of US Treasury is only a glorified name for PRINTING MONEY.
There is no free lunch. Likewise there is no free money. Money will go where it is treated well.
You can suppress interest only for a while. At some point of time, it will recoil like a coiled spring.
Arun Pai
Oct 1, 2011Sir is it posible to get the costing of all petroleum products from the state owned companies, to find out the facts of petrol cost in india. In this matter we can fight through RTI act. please advise. if yes what is the process.