Late at night around 3:00 am, I drafted a longish message for him describing QE and associated blah blah. But then it exceeded the SMS permissible length. I saved it in my notes and forgot all about it.
Today as I opened the notes for something else there it was. I thought its worth posting it here as a record of my thoughts on the happenings of my times.
"In a demand slump in a liquidity trap the central bank should be credibly irresponsible and create expectation of higher inflation to get out of the slump. Prime minister Abe of Japan made it the Central point of its election campaign and savagely expanded the Japanese money supply The yen depreciated from 77 to 100 from oct 12 to mar 13. QE is part of the plan to fight deflation. Now that the threat is receding there I talk of tapering the QE. The central banker of London has explicitly said that he will think abt tapering only once the unemoyment drops below 7%. Currently it's 7.5. It was always known that easy money in the us can create asset bubbles elsewhere such as the EM and once the tapering starts those will burst. It's inevitable. It has to go today or tomorrow. Can't help it. The best our RBI can do is to accept it and not choke the economy by raising interest rates just to defend the currency. That will throw us into a recession. It's already knocking at our doors. The car sales have dropped for 9 months in a row. First time in the history of the nation. It's a tough choice for Raghuram Rajan. I hope he chooses growth despite inflation due to currency depreciation. "
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