Liquidity Bubble – The Next Big Bubble

Fed’s $600 Billion Quantitative Easing Plan is finally out, and the reason why the fed announced the quantitative easing is to combat low growth and unemployment which has been on since the recession hit the USA economy in 2008. As of now it may boost the economy and also create job opportunities but the real question is will it lead to another bubble and a more dangerous one too, called liquidity bubble.

The immediate impact of quantitative easing would be rise in prices of risky assets like commodities whether it’s crude, gold, silver or other metals all will rise, which will lead to higher inflation which many economists are warning about. This liquidity will also lead to flaring up of assets prices like equity, real estate in emerging economies like India, Brazil, Russia and other such economies.

Now comes the scarier part which is that this liquidity which has been there floating around since 2008 can result in a bubble of its own where assets prices will go to such levels that do not justify the valuations and which ultimately result in a situation where this bubble will burst . We all know what happened with the housing bubble in USA, but this time this liquidity bubble will not be limited to USA or any one economy it will affect all assets class across the economies. It is due to this reason many people are worried about the quantitative easing done by the Fed and smart ones are taking this opportunity to sell those assets like gold, silver and emerging market equities which are rising because of this quantitative easing.

0 comments… add one

Leave a Comment

Related pages

cost pluadvantages and disadvantages of sales promotionbartering systemexample of substitution effectdegree of operating leverage formuladistinguish between monopoly and perfect competitiondefinition of conglomerate in economicswhat are the benefits of swot analysisprovision for salary journal entrycash flow statement in hindidefine current liabilitiesdisadvantage of command economyexample of price skimming strategyadvantages and disadvantages of ordinary sharesadvantages of an autocratic leaderadvantages and disadvantages of importingfdi full formpayment received in advance journal entrydisadvantages of exportinggaar meaningthe disadvantages of globalisationadvantages of currency devaluationpayback analysis definitioncross cheque sampledisadvantages of capitalist economydifference between drawer and drawee bankmonopolistic competition companyreturns inwards and outwardsadvantages of demat accountsubstitute and complement goodscosting and pricing methodsjournal entry for salary receivedmeaning of traditional economyadvantages of a planned economyfull form of slr in bankingconsignors meaningneft long formdifference between debentures and shareswhat is the difference between direct labor and indirect labordrawee drawerwhat is sundry assetsassumptions of capm modelwhat are the advantages and disadvantages of certificate of depositstrengths and weaknesses of autocratic leadershipblue ocean vs red ocean strategyexamples of complements economicswhat is fifo in accountingfull form of cibil in bankinglaw of diminishing marginal utility exampledifference between overdraft and term loandisadvantages of capitalismdisadvantages of bills of exchangeexample of horizontal mergerfifo method accountingskimming pricing definitiondecentralisation advantageslocational arbitrage exampledefine law of diminishing marginal utilitytypes of elasticitiesmixed economy definition and exampleunsystematic risk exampleservice performed but unbilledwhat is substitution effect and income effecttds full formdifference between corporation and conglomeratewholesale loan operations meaningdrawbacks of online bankingunearned revenue adjusting entrydifference between socialist economy and capitalist economyfeatures of sole proprietorshipmerits and demerits of plastic moneyadvantages and disadvantages of cost accountingfor a monopolistic competitorcompare socialism and capitalismunearned rent adjusting entryipo fullform