The most curiously awaited decision on QE3 has been announced recently by the Federal Reserve Bank of US. The sharemarkets have been anxious in knowing the decision on QE3 by US. What is QE3? It is “Quantitative Easing” by definition – that is collecting the documents from banks and financial institutions and those funds will be injected into the public for transactions. This is the short QE3 definition. Through this, approximately 40 billion US dollars will be introduced in the market every month.
What is QE3? Definition and Impacts
Financial markets are happy about this announcement. The financial market would have celebrated it if this would have been 60 billion dollars. Inclusive of US Sharemarket, almost all the markets have seen an increase and stood in a considerably better position. The US share market is close to the height of reaching its S&P 500. Crude oil is getting traded above $116 and gold is being traded above $1770 per ounce.
Why is this Quantitative Easing (QE3)?
By doing this the share market will see more money inflow. American government says that the quantitative easing will improve the status of workers. However, if you look at the past carefully it would give you a clear idea that nothing such had happened earlier. Reason – despite economic encouraging announcements earlier and implementation of reduced interest rates till 2015 there have been no changes seen. Even then the “Quantitative Easing” has been done for the third time.
Though, about more than two trillion dollars have been brought-in for transactions in the share markets during the past two years time, there have been no positive change seen in the job opportunities or any increase in the salary percentages. In 2012, the US government has given subsidies on nutrition for about 4.6 crore citizens of America. This is considered to be worst situation than it was in the year 2008 as 3 crore people suffered for food then. The salary percentage has increased only by 1.7 percentages. Earlier, the medicine of reforms was given without considering the real economic health and now even knowing it is not the right medicine, this year, it is getting repeated again by introducing QE3.
But the head of American Federal Reserve Ben Bernanke has no other choice in front of him now. He has taken this decision on compulsion. Due to this, without any doubt the money value will decrease across the world. Especially, the inflation will be definitely high among developing countries.
We must also look into the changes carefully that happened in Europe a few weeks prior to the QE-3 announcement. There, the European Central Bank has accepted to buy the short-term bonds (1 to 3 years time) from the countries which are into problems.
Asian economy is undergoing trouble at this time and due to the changes those have been announced in Europe and US it will bring in more money to the Asian countries. In turn the markets will go up. However, the real economy will be the other way. The core commodities’ price will increase and the expenses will shoot up to run the life in Asia.
Further, China’s low growth and political will affect Europe more. As far as India is considered, just now the diesel price has been increased to lessen the subsidy. But the crude oil price is still increasing in the international market.
Knowing the definition for what is QE3 lets have a final word on its impact. In conclusion, to rush for investments in the market by getting attracted by the glamorous announcement like QE3 is a wrong decision. It may not look like a wrong decision today. If not today, later it would swallow us as the chances are high on this.