As a mild Depression looms over the horizon, most reserve banks are going in for a dose of quantitative easing or a fancy name for making more money out of thin air, so as to drive down interest rates and jump start sagging economy s.
What is quantitative easing ? Chk out this Video tutorial from FT
The Japanese BOJ has been doing it for a long time with limited success.
The British have started , and so has the American FED with its 1.2 trillion package . But will it work this time especially because this financial crises was caused due to easy money policy creating asset and housing price bubbles ?
The RBI, left to fend off the recession on its own, and facing a glut of government paper will have to monetize debt and start purchasing long bonds.
The State govts will also need to issue bonds as no one is investing in the unattractive Postal Deposits which are facing outflows.
India Lacks BCD nexus and effectiveness of RBIs actions remains to be seen. Wonder what it will do to Gold, the Rupee , and especially to consumer Price Inflation and Interest Rates . Worse, what will be the effect on corporates and Stocks in general who will find it rather difficult to raise both equity capital and low cost debt .
So what does one do ? Buy gold ? Buy Floating rate funds ?