Talking about Federal Reserves Measures, how will it affect you?

Tapering of Fed’s quantitative easing measures has been a hit in worldwide news nowadays. Investors worldwide have mixed views about the tapering and some even see it as a threat while Japanese stimulus incentives show no sign of stoppage. This reminds me of a very famous economist with the name of Sir. Richard Duncan. Spending much of his early life in south east Asia particularly Thailand during his early age, he witnessed the Asian financial crises 1997 and after that dot com and housing bubble crashes. Based on his experience, he came out with his hit selling books titled “The New Depression”.

Well, his concept of New Depression starts where value of gold is no longer tied with the supply of dollars during the 1970’s. This allows the society to operate by leveraging on credits and loans almost unlimitedly as there are limitless dollar supply. As compared to era before 1970’s, the concept is very different from capitalism where entrepreneur earns a decent profit, save a portion of it and spend the rest on expansion which is quite conservative. However, nowadays, business finances its expansion in a very large scale that they rely much on third party aid which cause a gigantic bubble to expand whether the company is making profit or not which is also known as “Credidism”.

As there is no limit to the supply of money, US society spends a lot and lot of money on import goods particularly Japanese products. At the same time, Japan is generating an awful lot of revenue and climbs the way up to one of the world largest economy. Eventually, all the dollar flowing into Japan caused a bubble and that bubble has popped for more than 20 years where Japan has been facing deflation ever since. Of course, this is only one of the scenarios of bubble. My main point here is, the world is not operating like it used to be in the past. Our economy now is only stable provided we are being supported by some kind of forces. After each bubble burst, government needs to bail these companies that are too big to fail. Without these financial aid, the economy can no longer stand on its own. Imagine if US allows AIG to fall, it will affect thousands of constructions, borrowers, lenders, policy holders that drive the force behind the glamorous economy. The world simply cannot survive anymore without government aid.

Why am I posting this where it seems unrelated to value investing? Because evaluating individual companies are not enough anymore where the world is changing in a lightning pace. Therefore, tapering measures today might result in more stimulus tomorrow. Recognize the policies and take more advantage into your purchasing timing when you read another news about tapering next time! I wish you to strive in your investing journey folks!