Now most of us have studied a little bit of Micro-Economics at the UnderGraduate level, and some of us have been lucky enough to have had a stint at Macro-Economics at the Post Graduate level. Assuming that most of us are comfortable with the concepts of savings, expenditure, consumption, etc, read this article by S Gurumurthy in the Hindu Business Line for an interesting take on how the US Fed is effectively taking money out of the US families’ hands and putting it into the US Coporations’ hands.
In the article he talks of how the Fed by increasing and decreasing the Fed Rates is effectively controlling the flow of funds out of the regular consumers’ hands into the corporations’ coffers (both by way of increased sales and increased investments in the stock markets).
Although the article simplifies the concept to a large extent by using extremely simplistic mathematical formulae, the basic concept propounded here is a little scary, especially for people with a basic knowledge of Macro-Economics. It is so simple that any of us can actually see it coming, but however, the truth remains that most of us (at least those in the US)didn’t see it coming until it fell on their heads like a pile of bricks in the sub-prime mortgage crisis.
Makes us think how “The Chain Reaction” works in life, where one thing leads to another, which leads to a third thing, and so on and all of them multiply in intensity and hit us hard in the end.