Why more Forex reserve leads to more recession and then depression.?
As per the news published in the media, India, China and some other countries are trying to grapple with money flooding the economy from a record trade surplus, and swelling of foreign exchange reserves of the country. Why do the Central Banks of such countries have to make special efforts to check the flooding of money and foreign exchange in economy whereas for an ordinary man more money means richness and prosperity ?
May 31st, 2010 at 9:03 pm
Probably something to do with too much money in circulation pushes up spending power, artificially increasing prices and therefore raises inflation. This means prices of everyday goods go up and out of reach of the common person. Or in other words, the plebicite that power the economy. If they can’t afford goods on a base level, they stop buying. So the whole economy will slow or even crash. Or the people revolt, whichever comes first.