Friday, October 29, 2010

The Week Before November 2010

It is not only interesting to see the financial world in a state of euphoria based on possibility of QE2, it is also very intriguing to witness the changes in the American political scenario. Since I started analyzing financial markets, three years ago, I have been amazed by their similarity to the human psychology. Humans inherently abhor uncertainty and try to minimize it as much as possible. And for this very reason several corporations have risk-management units who try to actively mitigate risk. Although at surface this makes sense, this risk-management or "the fear of the unknown" can also result in irrational, untimely and hasty decisions, which can prove to be catastrophic.

A similar situation is being faced by the US Fed today. In order to stimulate the economy they pumped trillions of dollars in the US economy. However, the overall monetary based shrunk instead of increasing. This is classic example of an underlying deflationary economic current. Now Fed is on the verge of a second round of Quantitative Easing. I personally think that this is a decision, which if not work, can have catastrophic impact on the US economy and the global socio-political environment.

1 comment:

  1. why do you think is the government buying $600M bonds?


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