Quantitative Easing and its Implications

The United States administration has embarked on a new tactic to tide over the sub-prime economic crisis that originated in the year 2008 and one which it continues to reel from till date. The US economy has been characterised by high levels of unemployment (about 10 %) and stumpy economic growth (just 2%). Accordingly, to achieve higher growth rates, the policy makers are of the view that the amount of money flowing in the system should be enhanced. In order to increase the money supply, the Fed lowered the interest rates to record levels in addition to the enormous amount of money it pumped into the system through stimulus packages. It pumped in close to $1.75 trillion into the system. However, all these measures have failed to stimulate the economy and now it has resorted to quantitative easing to spur growth.
Quantitative easing is a mechanism through which the Fed prints fresh money to the tune of $600 billion and through open market operations wherein it would purchase financial assets and thus infuse money into the system. The increased money supply is supposed to bring a raise in the level of economic activity.
The policies of the current US government are strongly influenced by Neo-Keynesian economists lead by Nobel Laureate Paul Krugman. The fundamental assertion of Keynesian school of economics is that spending is imperative for the economic vigour of a nation and whenever private sector spending plummets due to an economic predicament the public sector has to intervene and spend money so that the level of economic activity doesn't fall. However common sense would dictate that saving is more important than spending. This unreasonable emphasis on spending encourages the government to spend more than it earns, which in turn drives the government to print more money to avoid a sovereign debt crisis and this increased money in the system creates inflation.
The major implication of quantitative easing is that the increased money supply in the system is bound to produce another bubble. If one were to examine the sub-prime crisis of 2007, it is amply clear that the causes for the crisis were the policies the US government followed on the aftermath of the dot com bust in 2001. The policies were aimed at increasing the amount of money circulating in the system. This massive infusion of money went straight into the real estate sector as it was perceived by the bankers as the most attractive and this resulted in the creation of a huge housing bubble. In fact even the dot com bust was due to the infusion of money that went into the technology enterprises as they were perceived as the most attractive then. However, now the banking system is uncertain of where to invest its money. That's the major cause for the liquidity crisis that the US economy is suffering from.
Another major implication of quantitative easing is that the increased money supply would create high levels of inflation. When there is more money in the system without a proportionate raise in the goods and services there is bound to be an increase in the price levels.
From an Indian perspective FII inflows are bound to increase further as the cheap money available can be invested in the Indian markets which offer the investors higher level of returns.
It is amply comprehensible from the policies being followed by successive US governments that that the government is yet to learn any lessons from its past mistakes. Instead of setting right the blemishes of the past the Fed seems to be continuing with the same path of action. I hope the US government realizes its folly and starts acting more responsibly.

What’s wrong with having a work exp?

The last week has been a happening week in the campus with summer placements on at full throttle. Though many of my batch mates managed to get themselves an internship at reputed firms my experience was disappointing. The most disheartening aspect was the discrimination meted out to people with prior work experience by most of the companies which visited our campus. Most of my batch mates with work experience of more than two years weren’t picked up by any of the firms.

I was told before joining my MBA that how work experience would add a lot of value, increase pay packages blah blah. However, I was dumbstruck to know that companies preferred freshers rather than people with prior work experience. There are still people who try and console us by saying that it’s just the scene at summers. They claim that the summer jobs being offered are supposedly menial jobs which are not suitable for people with work experience and the scene would perk up greatly in the final placements. I have decided to observe the final placements of my senior batch with earnest to affirm the veracity of the claims.

I find it difficult to comprehend as to why companies would discriminate against people with prior experience. I wouldn’t have had any qualms had they not prized our work experience and treated us at par with freshers. The thing which irks me the most is the bigotry being meted out. Work experience is considered as if it is something which is too horrific to be having in your CVs however in my opinion people with work experiance have an better understanding of corporate culture, show greater maturity.

The only advice I would give for MBA aspirants is to study hard during their graduation and crack CAT, XAT etc and join a b-school as a fresher. If one fails at his/her first attempt they will have to make sure that they make through in the succeeding year. People with less than a year of experience are usually considered as freshers and one’s chances wouldn’t be affected adversely. My opinion though is bound to change depending on the way the final placements of my senior batch progressess.

Do we need earth hour?

For those who have read my previous posts would be well aware that I am not a very big fan of the global warming or climate change phenomena. One of the activities espoused by the doom-sayers is the observation of earth hour. Earth hour is an exercise wherein people turn off lights and other equipment which consume electricity during a stipulated time. This time is different for different regions of the world. The big question is do we need to observe earth hour? We here means Indians,as I feel that almost all of my readers are Indians. Coming back to the question the answer from my side is vehement NO.

Few reasons why I don't like observing earth hour in India are,the first and foremost being my scepticism towards the global warming or climate change phenomena. The second reason would be that we already have our electricity guzzlers turned off,though involuntarily in the name of power cuts. Depending on the region were people dwell, electricity is not available for about an hour or two in a metropolis and anywhere between ten to eighteen hours in the rural areas. The situation worsens in the summer months as the demand for electricity spirals up way above the supply and states have no other option other than resorting to scheduled or unscheduled power cuts. In such a scenario it makes no sense for us to turn off the lights.

Another reason why I wouldn't advocate observing earth hour is we don't achieve anything by just switching off our refrigerators or lights or fans for a few hours.The effect of such an initiative is going to be minuscule and I see no point in participating in it.

So the next time I hear people saying they are going to observe earth hour I simply wouldn't give a damn and turn on all the acs and fans , in assurance that I can enjoy them as the demand for electricity would have come down in my neighbourhood.

IPL awards...

Those following IPL-3 would be very much aware of IPL awards. IPL for the first time this year IPL has constituted a award ceremony and there are eight different categories of awards to be presented. Further for each award there is an experts' choice and a popular choice taking the total tally of awards to sixteen. Some of the categories for which the awards would be given are best bolwer, best batsman, best fielder,best catch,most stylish player,best captain, best commentator and most fan friendly cricketer. Below is my choice for each of these awards.

Best Batsman: Sachin Tendulkar

I guess there aren't many competitors for this award. Kallis, Raina,Ganguly and Vijay do provide some competition but for the sheer consistency and the impact Sachin's knocks have had as far as MI are concerned ,make him a winner hands down. He holds the orange cap too.

Best Bowler: Pragyan ojha

There have many brilliant bowling performances in IPL-3. Zaheer Khan,Lasith Malinga have been remarkable for Mumbai, so have been Ashwin, Murali for CSK and Mishra for Delhi respectively. However Ashwin has been brilliant only in the second half and Mishra not as consistent as he would have liked and same with Murali though he was dropped for a few matches without any reason. In contrast Ohja has been excellent throughout the tournament and has managed to hold on to purple cap as well.

Best Catch: AB Devillers

One of the most toughest choices. Few other breathtaking catches were that of David Hussey, Rohit Sharma, Bollinger. But AB marginally edges them out.

Best Fielder: David Warner

Again another tough category. There have been scintillating fielding performances throughout the IPL with the likes of Raina, Rohit, Symonds,AB Devillers,Dilshan etc giving Warner a run for his money.

Most Stylish Player: Murali Vijay

Another difficult category but Vijay's stylish flicks and drives wins this award for him.

Best Captain: Sachin Tendulkar

I do agree that MI have a formidable team and the likes of Warne, Gilchrist and Dhoni are not blessed with such luxury. However its the way that Sachin carried the team leading from the front most of the times which make him the best captain of IPL-3. My choice would be vindicated if he could lead them towards the championship.

Most Fan Friendly cricketer:

The fact the I had been to only one of the matches and managed to catch all other matches in TV where you hardly get to know what players do between overs or innings breaks or before commencement of the match makes me ineligible to choose a winner. So I don't want to take a call.

Best IPL Commentator:

The commentary has been disappointing throughout IPL-3. Commentators spend more time eulogising different brands like MRF, karbon and pay very little attention to the action on the field. I like to call them marketing agents rather than commentators. So no award in this category too.

Thats my whole take on the different awards. Need to wait till 23 rd to see how many of my choices have found favour with either the judges or the experts.

Can the IPL retain its sheen?

To say that the Indian premier league( IPL) was a stupendous success would be an understatement. The IPL into its third year has so far managed to attract huge crowds to most of its matches,humongous amounts of money in the form tickets, sponsorship,advertisements etc. However, it has never been free from controversies. It all started with the hue and cry raised against auctioning of players. The second edition was blighted by issues of security and the dates of IPL clashing with elections and this eventually lead to the IPL being played in South Africa. This year the controversies surrounding the auctioning of the Kochi team has come to haunt it just at the wrong moment. The tournament is interestingly poised and we have around 5 teams competing for a couple of semi-final spots. However this recent row has managed to deflect attention from the on-field happenings to off-field issues.

All business conglomerates in India and abroad have realised the huge potential that IPL offers. The fact that IPL garnered about 3500 cr INR for the two new teams auctioned indicates the huge potential it offers. However, the billion dollar question is can IPL sustain its growth amidst all these controversies and still manage to stay attractive. My take is that IPL will collapse under its own weight. Just imagine the scenario next year. IPL with the addition of two new teams would expand further and thus the number of matches would almost get doubled to 94. Given the limited time period available to run the show it would lead to more cramming up and players would soon be complaining of burnouts. All players do have their national commitments and players would be more willing to rest their tiring bodies rather than make a quick buck. This line is already being toed by players like Micheal Clarke and Mitchell Johnson and soon we would have more players joining their club.

The other major reason is that it would lead to a saturation among the public too. People are bound to get bored with the never ending frenzy and a scenario similar to 2007 world cup would arise and thereby reduce viewer-ship and cause profits to decline and ultimately lead to the collapse of the whole league.

The IPL would be better-off if it can do away with its double round-robin format and follow a single round-robin league format wherein each team plays against the other team once instead of twice as per the present format. This would lead to a drastic reduction in the number of matches from 94 to 49 and thereby make the tournament more interesting. The other alternative is to divide teams into two groups of five each and have a double round-robin league within the group. The top 2 teams from each group can then proceed to semi-finals. This would bring down number of matches to 44 and the time period required would be much shorter and players would be more willing to participate then.

However if the IPL were to continue with its present format and play 94 matches the public and the players are bound to suffer and in such a scenario it's nigh impossible for the league to replicate its breathtaking success achieved so far.

I am back...

Its been quite a while since I have posted anything on my blog. Now that I am done with all my GDs and interviews,I have so much time to kill and people can expect a lot of posts from me as I dont have anything meaningful to do for the next two and half months.To start off my itinerary for the week looked something like this.

Apr 3 - IMT G- bangalore

Apr 4 - IIT M- Chennai

Apr 5- IIM Idr- Bangalore

Apr 6- NMIMS- Mumbai

Apr 7- a rare off day

Apr 8- MDI- Bangalore

Apr9 - IIM L- Bangalore

Apr 11- IMI- Bangalore

Apr 15-NITIE-Mumbai

The prospect of facing some many interviews within such a short span of time and the amount of travelling I had to do for it was nauseating. I also had to dwell out many a thousands of rupees towards travelling,boarding and lodging.

This is where I would like to thank the IIFT folks for two reasons. First for selecting me and then for revelling their results just at the right time. Having made it to IIFT I decided to skip most of the aforementioned interviews and attended only the interviews of IIM I , MDI and IIM L. I would be sharing my experiences of the few interview and GDs which I attended in the subsequent posts.

CAT 2009 experiance

This is a post which I have been wanting to write for a long time. Now that the CAT results are out I don't want to delay this any further.

I gave my CAT on November 30, 2009 in Bangalore. This was the first time cat was being conducted in an all new avatar. It was the first computer based test not a computer adaptive test as GMAT or GRE. Being a software engineer my eyes were sufficiently trained to stare at computer screens for a long time, I didn't have as much trouble in adjusting to this new version, though I found solving reading comprehensions and DI questions based on graphs a touch difficult. I had managed to give around 30 mock cats in the on-line format as part of my preparation so I felt fairly confident of putting up a good show.

The test was scheduled at 10:00 AM in the morning and candidates were asked to report at-least two hours prior to the scheduled time to complete the security procedures. I budgeted for Monday morning Bangalore traffic and reached the centre by 7:45 AM. We were then directed to a waiting hall and made to wait for about an hour before candidates were called in groups of ten for fingerprint scanning and our photographs was also taken. We were then given a 15 minutes break to refresh and the test started at around 10:00 AM. I was so happy that things were proceeding without any glitches and we could start on time. I had read enough reports of technical snags in the previous days so I was elated to start on time. Candidates had to sit through a 15 minutes tutorial before they could start with their test. The tutorial was the same as the one which was uploaded on YouTube, so I just glanced through it without paying much attention. At 10:15 all of us started the test. I started with VA , my strongest section and things were progressing well. I had managed to finish off about 10 questions when misfortune struck. An error got displayed on my screen and soon the application delivering the test collapsed. My initial reaction was that it was a problem with my system alone but I soon found out that the whole centre was facing the same problem. It apparently had something to do with the server delivering the test and we soon had frantic prometric staff running around, making calls to their seniors finding out how to resolve the whole issue. I was praying that the whole thing be resolved asap as I had to go back to work once the test was over. I was looking helplessly at the prometric staff and I soon got bored and started feeling sleepy. I then started having a conversation with the guy next to me to shake off my sleep and bingo a prometric staff intervened and cautioned us against talking to one another inside the testing hall. Faced with no other option I decided to dose off and had a reasonably good nap only to be woken up by an announcement by a prometric staff that if the issue was not resolved within another 20 minutes our tests would be rescheduled. I felt like a thunderbolt had been delivered. The problem with rescheduling is that its done according to prometric's convenience and their is a high probability of the test being held in Lucknow or Bhopal at a time which may not be convenient to me.Fortunately the issue was resolved within the deadline and we got to proceed with our test by 12:30. Before proceeding we were offered a break of 15 minutes and I quickly went to the restroom and splashed some water on my face to shake off the sleep. My test was completed by 2:30 PM and I found the difficulty level of the test to be quite low. The conundrum with such a test is that it narrows down the line between students who have prepared well and those with reasonable preparation. There were also some many uncertainties involved this year like the normalization of scores of people giving their tests in different slots and there were also reports of questions being repeated which conferred an advantage to people giving their tests at a later date . This was the time I decided that there was no use worrying about all these things and told myself that I have given the test and there is nothing I can change so let me better concentrate on the upcoming exams.

Everyday there were reports of people facing technical snags in different centres and I decided not to give much hear to them. The most disturbing news however arrived during the third week of January. A good month and a half after the testing window was closed and at a time when results were expected to arrive. The IIMs had arrived at a set of criteria on which the tests would be conducted again based on complaints received by candidates who faced glitches during their test. One criteria was that tests would be rescheduled if the the total time exceeded 140 minutes. I very much fall into this category as my testing time took a total of more than 250 minutes. The retest was to be conducted on 30 and 31 st of January just a day before my IIFT Gd/pi which was scheduled on February 1. This news just drove me crazy. I needed to put in a great deal of preparation for my interviews and if I were to take CAT again I had to start revising them again as I was pretty much out of touch in solving CAT questions. I then decided to call up prometric and by god's grace they informed me that there was no need for me to give the test again and my scores of the test I wrote on November 30 would be considered. I was very much relieved after hearing this news and started off with full swing for my IIFT Gd/pi preparations.

Then came the endless wait for the results. The results were originally scheduled to be declared on January 22 but were postponed to third week of February and then again postponed to end of February. Eventually the results were out on February 28 though only IIM Ahmadabad and Shillong had declared their lists of shortlisted candidates for the next phase of the admission process. IIM Calcutta and Lucknow came up with their respective lists by March 3,IIM Bangalore,Indore and Kozhikode are yet to come up with their list though. After rejects from Ahmadabad, Shillong and Calcutta on account of low scores in quants ,I was extremely elated to find my registration number in Lucknow's list. I hope to get a call from at least one IIM out of B,K and I. Fingers crossed.