Money can't buy optimism - Views on News from Equitymaster

Helping You Build Wealth With Honest Research
Since 1996. Try Now

  • MyStocks


Login Failure
(Please do not use this option on a public machine)
  Sign Up | Forgot Password?  

Money can't buy optimism

Mar 23, 2009

The Reserve Bank of India (RBI) is trying all the tricks in its bag to pump in more liquidity into the system. But we remain unsure as to how much of a difference that will really make. For in this case, the amount of money in circulation in the country is not any lower than what it used to be in 2007 - 2008. Agreed that few sources of money like FII inflows and IPOs have dried up but RBI's recent measures like drop in CRR have to some extent made up for the shortfall. It has to be noted that we were doing just fine in 2007-2008, even with that much lesser amount of money in circulation at that point of time. Infact, we were doing fabulously. So if the money supply isn't the problem, would it really make much of a difference if the RBI were to adopt more and more aggressive tactics to increase the money supply from its end? It really hasn't been of any practical value so far. They've been trying bolder and bolder actions, without any concrete results.

Thus, there stands a very real possibility that the problem lies elsewhere. One of the more plausible ones is that like banks, who have the money but are reluctant to lend, every other entity in the country is also displaying the same attitude. Banks are not lending for fear of defaults. Companies are perceived as likely to default as they are facing dwindling demand. They put expansion plans on hold and have gone into job cutting mode due to that. They are in turn facing weak demand because consumers are not spending. Consumers are not spending due to insecurity in the anticipation of job cuts and the like.

All in all, it's just one big vicious circle. There's no one entity in this chain who is the culprit. All of them are together making things worse for each other.

So in conclusion, increasing money supply has not helped so far and probably won't help in future too. Because it is not its scarcity that is causing the problem in the first place. And here the situation is not even like the US where there is tremendous deleveraging to be done. At the root of all the current problems here in India lies only one thing. A deep psychological pessimism and cynicism in everyone's outlook. It is only when that cloud of pessimism stops clouding people's minds that all these problems will sort themselves out.

As Robert J. Samuelson, contributing editor of Newsweek and Washington Post, put it, "Depression' captures a general alarm. The vague fear that something bad is happening, by whatever label, causes consumers and business managers to protect themselves by conserving their cash and slashing their spending. They hope for the best and prepare for the worst. When people stop worrying about depression, when the shadow lifts, the crisis will be over."

Equitymaster requests your view! Post a comment on "Money can't buy optimism". Click here!


More Views on News

BSE Sensex Surges 510 Points; ONGC Among Top Gainers (Market Updates)

Sep 28, 2020 | Updated on Sep 28, 2020

The BSE Sensex Surged 510 Points; ONGC Among Top Gainers. Find the latest update, special reports and news on all time high gainers of BSE Sensex at

Why the Market May Rally for a Few Days (Fast Profits Daily)

Sep 28, 2020

Why I think the market can rise for the next few days.

My Top Pick for 2021 is Not a Stock. It is Something Much More Powerful (Profit Hunter)

Sep 28, 2020

My top pick for 2021 is something that has helped me and my subscribers beat the stock market by a factor of 2:1.

Your Queries on the 8-Year Cycle Answered (Fast Profits Daily)

Sep 25, 2020

You've sent in your queries on my videos on the 8-year greed and fear cycle in the market. I'll answer them in this video.

It's When You Sell that Counts (Profit Hunter)

Sep 25, 2020

How I alerted readers to the impending crash last week.

More Views on News

Most Popular

Why We Picked This Small-cap Stock for Our Hidden Treasure Subscribers (Profit Hunter)

Sep 17, 2020

This leading household brand will profit big time in a post covid world.

My Top Stock to Buy in this Market Selloff (Profit Hunter)

Sep 22, 2020

The recent correction offers a great opportunity to buy this high conviction smallcap stock.

Can the Nifty Fall to 10,200? (Fast Profits Daily)

Sep 24, 2020

The Nifty has reached an important support level today. If it breaks then we could see further downside.

What Do the Charts Say About Buying Smallcaps Now? (Fast Profits Daily)

Sep 18, 2020

Everyone seems to be excited about buying smallcaps now...but is it the right thing to do? What do the charts tell us? Find out in this video...


Covid-19 Proof
Multibagger Stocks

Covid19 Proof Multibaggers
Get this special report, authored by Equitymaster's top analysts now!
We will never sell or rent your email id.
Please read our Terms


Sep 28, 2020 (Close)