Fed Decides Not to Taper

The US federal government this month decided against tapering its $85 billion bond buying program. This decision surprised many analyst who had been expecting a reduction in purchase by the US Federal Reserve. The Fed explained that the economy wasn’t moving along as strongly as they hoped to warrant a reduction in asset purchase.

Despite its explanation, I believe the Fed was wrong not to begin tapering its asset purchase program. Since the recession in 2008, it has been buying assets in what is know as Quantitative Easing or QE to increase demand in consumption and the money supply in the economy. QE has worked in helping drive down unemployment and helped the stock market reach new heights. But two worrying issues remain.

The first is Inflation. Increasing the money supply in the economy by printing money artificially increases the prices for goods as people have more money to purchase the same number of goods. Since 2008 the Fed’s balance sheet has more than tripled to $3.6 trillion. This rise in supply of money hasn’t caused major inflation yet but sustaining it only increases the chances of higher inflation in the future.

The second major concern is QE’s long term effect. Like an addict experiencing withdrawal, even the mention of tapering in May caused stock markets to go lower and caused volatility. Although this is unavoidable as market participant start dealing with a lesser role by the Fed in the market, the longer the Fed continues QE, the more painful and volatile the market will be when the Fed eventually begins tapering.

 

http://business.financialpost.com/2013/09/18/fed-declines-to-taper-keeps-us85-billion-bond-buying-program-in-place/

Ethics- Subway

Ethics can mean many things to many different people. But at its core, its doing something that is morally correct according to society we live in. Many different business do things that are ethically incorrect. One of them is false advertising. One company that recently got bad publicity for false advertising is Subway Sandwich Shop. In the United States, Subway runs a popular marketing campaign titled “5 Dollar Footlong”, where they have a deal for their Footlongs, priced at $5. The campaign has been popular and has helped the company grow over the last few years.

The main issue with the campaign is, well its false. After an Australian man measured a Subway sandwich he bought and tweeted a picture of it, the story went viral. Then 2 men from New Jersey visited 16 Subways in the area to see if the story was true. The results were similar, with every one of the sandwiches they bought falling short of the 12 inch mark.

This reminded me of a COMM 101 class where we talked about marketing meeting accounting. I can see the marketing executive talking to the accounting director about how they had come up with a great marketing slogan and how the low price combined with the marketing campaign would boost sales. Then the Accounting executive would respond back by stating without reducing the cost somehow, it wouldn’t be feasible.

Now it may or may not have happened that way. Only the executives at Subway know. But in the end, Subway should either sell what they are advertising or advertise what they are actually selling.What Subway did was ethically wrong. Just as important though, it was bad business practice as trust between buyer and seller is at the core of the free market economy we live in today.

Articles:

http://gretawire.foxnewsinsider.com/2013/01/23/footlong-sandwich-controversy-sparks-lawsuit-against-subway/

http://www.businessinsider.com/subway-footlong-11-inches-2013-1