"The flood of liquidity is going abroad and causing problems all over the world", said Joseph Stiglitz, Nobel Prize winning economist last week. Does that include India?
Our Finance Minister seems to think not, but the Reserve Bank of India does. Nice. While they're sorting that one out, we can take time off to backtrack to where the current financial crisis began, namely in the US.
To try and sort its banks out after the financial meltdown, the US Federal Reserve lowered interest rates to virtually zero. This cheap money allowed the banks free access to funds, which they could use to strengthen their balance sheets, which had been socked by the 2007-08 crisis.
The policy hope was that these funds would encourage US banks to make loans, and kickstart the US economy. It didn't happen, because US households had also stretched themselves with housing and other loans during the boom years; to compensate, over the last couple of years, they have increased their savings rate, setting off aRead More »from Liquidity could wash out India’s stability