• About Us
      Asia’s 1 st LEED Platinum Rated Campus

      Asia’s 1st LEED Platinum Rated Campus

      About Us

      • Chairman's Message
      • Vice Chairman & CEO
      • Dean's Message
      • Governing Council
      • Business Advisory Council
      • Academic Advisory Council
      • Work With Us
      • Mandatory Disclosure
      • Anti-Ragging Notice

      TERM ZERO

      Media

      • News
      • Events
      • In Media
      • Media Kit

      Rankings

      Accreditations

      NIRF

      Campus

      Blog

      Annual Events

      • Convocation
      • TEDxGLIMChennai
      • L'Attitude
      • Digital Symposium
      • Sangamitra
      • Annual Alumni Meet
      • SWIM
      • IEC
      • Human Capital Management
  • Programs
      Transform and Lead

      Transform and Lead

      Full Time Programs

      PGPM

      One Year MBA for professionals with work experience

      Learn More Apply Now

      PGDM

      Two Year MBA for professionals with 0-2 years of work experience

      Learn More Apply Now

      EXECUTIVE EDUCATION

      Partner with us for customized learning solutions for your organisation

      Learn More

      Corporate Programs

      PGXPM

      Executive program for Mid & Senior Level working professionals

      Learn More Apply Now APP. Deadline: 30th August, 2020

      PGPM Flex

      Weekend management program for young working professionals

      Learn More Apply Now APP. Deadline: 30th August, 2020

      MBA in Business Analytics

      Family Enterprises Management

  • Faculty & Research
      Ranked 6th

      Ranked 6 th

      by NIRF ranking in teaching and learning among all B-Schools in the country

      Faculty

      • Full Time Faculty
      • Visiting Faculty
      • Adjunct Faculty

      Research

      • Faculty Editors
      • Papers & Journal Publications
      • Case Studies & Books
      • Conference Proceedings

      Centers of Excellence

      • Centre For Excellence in Retail Management
      • Great Lakes Centre For Management Research
      • Kotler - Srinivasan Centre for Research in Marketing
      • Centre for Excellence in Business Analytics and Business Intelligence
      • CET
      • Union Bank Centre for Banking Excellence

      Conferences

      • NASMEI
      • Financial Conference
  • Recruiters & Companies

      “Great Location for Talent. We are happy to continue visiting and having budding professionals join us and grow their careers.”

      Anil Visal

      Partner - Deloitte India

      Campus Recruitment

      • Recruitment Process
      • PGDM Class Profile 2018-20
      • PGPM Class Profile 2019-20
      • Past Recuiters
      • Student Achievements
      • Recruiters Speak

      Internships

      • Recruitment Process
      • PGDM Class Profile 2019-21
      • Live Projects

      Placement Reports

      • PGPM
      • PGDM
      • Internship Report

      Leadership Series

      • Titans Speak
      • Industry Lecture Series
      • Thought Leader Series

      Talent Listings

  • Alumni

UNDERSTANDING CONTRACTION AND EXPANSION OF MONEY SUPPLY AND ITS CONSEQUESNCES PART 1 – BY Dr. BOBBY SRINIVASAN AND Dr. SUDHAKAR BALACHANDRAN

October 27, 2014 | Posted by bobbysrinivasan << back to blog

The economic cycles we have witnessed in the last couple of decades are due to a host of reasons among which the level of money supply stands out as one of the major factors.
Fact: In around 1997-1998, the enormous amount of dot com companies came into existence and were listed in several exchanges in the US. The stocks of these companies became a unit for speculation. Investors pumped in money in large quantities and used the greater sucker theory to support their decision. In simple terms, greater sucker theory states that there is always a fool (sucker) waiting in line to pick up the stocks from you at a price higher than what you paid. Both the Nasdaq and NYSE reflected this sentiment beautifully. Then, came the landslide. Prices of these stocks crumbled. Yahoo share traded as high as $500 and as low as $5.
According to the data available, trillions of dollars evaporated from the market and nearly 160 dotcom companies perished and the wealth and the investors who speculated were destroyed beyond any imagination.
Action: The US Federal Reserve, then Chairman Dr. Alan Greenspan moved quickly and pushed down the Fed discount rate from a high of 6%. When it all ended the discount rate fell to 1%. This saved the US economy from going into a serious recession.
Consequences: When you pump in so much money, especially when the interest rate fell from 6 to 1%, the money this time became available for speculation and this time into the real estate.
What happened: During the years 2002-2007, property prices shot up in the US by nearly 80%. Everybody speculated by buying several properties. This again ended in a collapse. The sub-prime crisis of 2008 is a sordid remainder of how people’s greed and fear contributed to this economic phenomenon which almost drove the US again into a deflation. The stock markets collapsed not only in the US but in India where our sensex dropped from 21000 to 8000 in a very short period. FIIs took their money and abandoned the then sinking ship.
Lesson learned: Pumping money into the system without sound economic reasons is like playing with fire. Current Abenomics in Japan is a classic case. The Japanese government has already pumped in a trillion dollars to revive the economy from deflation. The government wants at least a 2% inflation before they stopped pumping. You think the economy is showing confidence. No, look at their stock market Nikkei index was 38500 in 1989 and today, in October 2014, it is around 14500. It is clear that sooner or later, Japan will give up pumping money into the economy without any reason. In the last one year, the value of Yen has dropped from 78 to 109, a near to 30 to 40 depreciation.
Now, let us turn our attention to the US in the next blog.

<< back to blog

Programs

PGPM - One Year MBA for professionals with 2+ years work experience

Learn More >

PGDM - Two Year MBA for graduates with 0-2 years work experience

Learn More >

Events

Union Bank Finance Conference
Dec 17, 2020

Networking with Champions
Nov 08, 2020

Harry Kraemer on Performance with A Purpose
Oct 08, 2020
Read more

Successful Women in Management (SWIM) Lecture Series
July 05, 2020
Read more

The Great Circle Alumni Talk Series
July 04, 2020
Read more

  • About Us
  • Programs
  • Faculty & Research
  • Recruiters & Companies
  • Alumni
  • Blog
  • Contact Us