Under the label of QE, the Fed will buy long-term government bonds, perhaps one trillion dollars or more, adding an equal amount of cash to the economy and to banks’ excess reserves. Expectation of this has lowered long-term interest rates, depressed the dollar’s international value, bid up the price of commodities and farm land, and raised share prices.
Proponents of QE2 would point to Japan and say the policy known as “quantitative easing” is likely to prove ineffective. They term it a leaky hose, rather than a monetary Noah’s Flood.
The concept of decoupling states that the economies of the emerging markets are not essentially driven by the economies of the developed markets. While being true to an extent, it is debatable.
Before the 2008 crisis, this theory had gained immense popularity on account of the high growth in the emerging markets. At the end of FY 2007, the MSCI Index of emerging markets had surged 36.9% Ytd when compared to the 6.2% surge in the Dow Industrial Average. The similar scenario in FY 2010 has regained the popularity of this theory.