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US' stimulus efforts are in vain
Tue, 21 Dec Pre-Open

The US is in a bad shape. On the unemployment front especially the scenario could not have been starker. As per the Economist, the unemployment rate was still high at 9.8% in November. The more important fact to note is that out of the total number of people unemployed, around 42% did not have a job for more than 26 weeks.

The US Fed, out of sheer desperation, has been announcing one stimulus package after another in a bid to revive the US economy; the latest such stimulus being labeled QE2 . But this has certainly not done much in terms of reducing unemployment and is not expected to do much in the future as well. Infact, in this regard, Mr. Raghuram Rajan, former economist at the IMF, opines that QE2 is not really going to take the US economy on a higher growth trajectory. At most, it could probably prevent the risk of outright deflation or outright double-dip recession.

America's problems run quite deeper. High unemployment certainly is the foremost concern. A widening deficit is the other. Both these issues are not going to go away overnight and will take a much longer time to resolve.

The US government is obviously at its wits end. This is evident from the fact that it is injecting more stimulus into the economy when clearly this is not yielding the desired results. It is only giving an illusion of activity which does not make much sense.

What the US' stimulus measures have infact done is inflate the asset prices in the emerging markets. The US wants to give more money to the American people. But they are parking this money elsewhere. How soon the US Fed understands this point remains to be seen.

Meanwhile, as long as the US interest rates remain close to zero and the Indian economy continues to grow, money will keep flowing into the Indian stock markets. But this activity should not form the basis for your investment decision. Investors should refrain from investing in any stock if the price is high. This is even if the foreign investors are pouring money into that stock in droves.

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