Opening up the discount window to investment

IIPM INTERNATIONAL - NEW DELHI, GURGAON & NOIDA

Opening up the discount window to investment banks, announcement to auction $200 billion of US treasuries for certain mortgage-backed securities, unleashing a fiscal stimulus package, a $150 billion tax rebate package et al apparently imply that US does not enjoy the luxury of waiting for markets to stabilise before thinking about the future. The fact is US is plagued by profound errors in risk management. The IMF has already shaved its forecasts for growth in the global economy; and the downbeat analysis has further created a gloomy backdrop for policymakers across the globe.

The ongoing debate may continue, but in the final analysis, it needs to be figured out how hard the landing will be in the US. When it happens, policy makers will also have to analyse whether it will prove to be a V, U, W or L type of recession, and act accordingly, for the sake of the world at large. After all, how the other economies fare in this period will depend to a significant extent on the US situation. So the Fed has to be ready with all the parachutes it can spare...

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Source : IIPM Editorial, 2008

An Initiative of IIPM, Malay Chaudhuri and Arindam chaudhuri (Renowned Management Guru and Economist).

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