Archive for November, 2013

Market drops… on GDP growth

Friday, November 8th, 2013

Today, on 11/7/2013, markets have experienced a significant drop on good news of GDP growth on a speculation that Fed will cut the QE programs. With this in mind, let’s ask us some questions:

  • GDP is measured in dollar amounts per transaction and in total
  • Dollars are created either out of debt or out of direct injection of liquidity (that is, QE)
  • If the current GDP growth is due to creation of new production capacities created by new demand, then dollars counted towards GDP were out of debt creation, which should be a good news for the financial markets
  • If the current GDP growth is due to injection of liquidity, then said injection (QE) should continue to maintain said GDP growth, which again should be a positive sign for the financial markets

So, then, why did the markets drop today?

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