Important for Economics and Finance Students: When you pump the money in the financial system, the money should flow towards workers in the economy in order to stimulate gross spending in the economy, so as to ultimately turn the wheel of the GDP growth. But, if money is being pumped, and instead of workers wages, the securities prices witness hefty increases (recent IPOs of facebook, twitter, alibaba that rose to different highs in few minutes and sustained their such levels), there arises a risk of deflation once that MONEY PUMPING PROGRAM CEASES..... This is what is happening in the global financial markets; Oil, Gold and other commodities plummeting as the Quantitative Easing programs didnt make people liquid, instead merely the system was made liquid. (though there are other international political reasons of energy prices decline, but this reason too has primary importance) - In the verge of such lowered commodities prices, failure of workers wages uptick (and subsequent decline in spending), failure of pulling inflation in the system ((inflation target of 2% by Federal reserve wasnt met in 29 consecutive months) and more importantly cessation of Quantitative Easing (QE3) by Federal Reserve; The world could witness DEFLATIONARY PHENOMENON and if this happens, the impact would be much more deadly than 2007 financial crisis. - Syed Faizan Ahmed
Posted on: Tue, 04 Nov 2014 15:30:33 +0000
Trending Topics
Recently Viewed Topics
© 2015