Last week, the Federal Reserve made history when it embarked on unlimited quantitative easing. In other words, it plans to buy bonds and keep interest rates as low as possible for as long as possible until unemployment comes down and the economy starts growing at a healthy clip.However, legendary NYU finance professor Aswath Damodaran isn’t convinced this plan will work.
“I am sure that I am missing some significant piece of the puzzle, but as I watch the news coverage and market reaction, I am reminded of one of my favourite movies, ‘Groundhog Day,’ he writes in a new blog post.
“I was a sceptic on the efficacy of QE2 and Operation Twist and I remain unpersuaded on QE3. If the definition of insanity is that you keep trying to do the same thing over and over, expecting a different outcome, then we seem to be fast approaching that point with the Fed.”
Damodaran runs through some of the risks and implications of the the Fed’s latest plan. Read about it at the his blog, Musings on Markets.
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