The infusion of liquidity by monetary policy is pushing up the price of gold and pulling down the price of oil.
Some interesting conjectures:
1. Gold is a not a luxury/vebelen good based on current trend where the demand has tapered off as price has increased.
2. Commodity prices are cooling off in effect equating liquidity pressures to cooling-off of demand side. By the same logic, easing liquidity should lead to easier lending thereby enabling capital expenditure.
I have been reading a lot on behavioural economics and Moral Hazard pops up everywhere, AIG management has gone on a vacation after bailout. Infusion of public equity(Tax payers money for bailout) into private sector will lead to inefficient allocation of capital. Regulation is a more efficient framework if Regulators listens to leading lights like Nassim Taleb who had criticised VAR methodology in the book fooled by Randomness . Can regulators listen to hedge fund managers like David Einhorn, however diligent they may be?
Risk taking =f(utility, weighing) , Tversky and Kahneman, 1992, suggest that individuals are risk seekers for small-probability gains and large-probability losses, and risk averse for large-probability gains and small-probability losses. The only issue here is whether the traders are cognizant of the large-probability losses!
Some interesting conjectures:
1. Gold is a not a luxury/vebelen good based on current trend where the demand has tapered off as price has increased.
2. Commodity prices are cooling off in effect equating liquidity pressures to cooling-off of demand side. By the same logic, easing liquidity should lead to easier lending thereby enabling capital expenditure.
I have been reading a lot on behavioural economics and Moral Hazard pops up everywhere, AIG management has gone on a vacation after bailout. Infusion of public equity(Tax payers money for bailout) into private sector will lead to inefficient allocation of capital. Regulation is a more efficient framework if Regulators listens to leading lights like Nassim Taleb who had criticised VAR methodology in the book fooled by Randomness . Can regulators listen to hedge fund managers like David Einhorn, however diligent they may be?
Risk taking =f(utility, weighing) , Tversky and Kahneman, 1992, suggest that individuals are risk seekers for small-probability gains and large-probability losses, and risk averse for large-probability gains and small-probability losses. The only issue here is whether the traders are cognizant of the large-probability losses!
1 comment:
Govt intervention (especially things like subsidies, tax breaks etc) invariably is an inefficient process, I guess.
Was reading 'Banker to the Poor' by Muhammad Yunus... he has something similar to say on govt initiatives whether it is to alleviate poverty or any such measures...
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