Expectations and Growth...

The economy is one the Knife-edge... Anything people would do to gain from expectations may reinforce the prices and the economic condition... For example, if there are expectations that the economy and prices would fall investors would supply more leading to the outcome, itself, low price and the economy, and vice-versa...

Notwithstanding, if people are nudged to change expectations that the prices and the economy would grow through stimuli it also creates problem, for example if the monetary policy increases interest rate expectations it also reduces supply by increasing unemployment and prices vice versa...

The objective of monetary policy is to stabilize prices and economy at the full employment by maintaining neutral or zero real interest rate or nominal rates equal to inflation... any deviation from the neutral interest rate would be self-fulfilling...

The RBI must educate people about real interest rate or the actual interest rate after accounting for inflation or the inflation adjusted interest rate... Currently real interest rate in INDIA are high compared the outer economies, the real interest rate is 2.3% and inflation is 3.1%, the RBI has set the reporate at 5.4%, adding the above two...

The RBI is compensating for inflation and above that it is giving 2.3% to maintain savings and investment... Lower real rates could definitely reduce deposit rates, but people should save and invest in G-secs or the Govt bonds instead of fixed deposits...

A bond has both a bondyield and a bondprice, when the yield goes down bond price goes up and vice-versa... If you buy bond at 8% it would help contain the real value better... it is a misconception that bond works only during slowdown, because during growth yield also goes up which is also profitable...

The rate cut bottom-out could help the economy grow... Lower interest rate expectations delay demand... Simply lower growth, demand, prices and interest rate expectations delay spending, both, consumption and investment, people wait for growth, prices and interest rate and demand to bottom-out...

GST on oil, real estate and electricity would decide the real collection and revenue growth... INDIANS pay 50% tax on oil, and higher tariff/tax on real estate and electricity which if lowered to 28 percent GST could have expansionary effect on demand and growth...

Lower prices increase demand and price expectations and growth expectations, too... Lower inflation or higher productivity and interest rate increase domestic investment and also increase capital inflows due to strong and stable currency, which would also lower oil prices and transport prices kickstart the investment cycle...

Most of the two-wheelers and small cars are not luxuries; Govt should reduce GST to 5% on two wheelers and 18% on small cars... from the highest tax rate of 28%...

Consistency in growth and returns helps form better expectations, but that is not all... you need to buy cheap, hold, and sell higher... It is quite convincing... if you buy low, even average stocks with consistent past returns, could give you decent returns in 3-6 months... may be double...

Paul Krugman knows that a 2% inflation target (by the Fed) has lowered the economywide prices expectations below to an average of 2%... The policymakers have set a price increase of 2% on each product in CPI, including food and fuel, and whenever average inflation (CPI) reaches over 2% investors would start selling stocks/inventories, because of tightmoney by the Fed and lower demand and price expectations... which could further reinforce lower price and interest rate expectations and delay in demand and growth (expectations)...

Lower longrun yields in the US are in line with inflation and interest rate expectations, lower inflation and interest rate expectations have lowered longrun bondyields, it means the bond market expects lower inflation and interest rate expectations and people could delay spending which could further aggravate recession. 

Lower inflation and interest rate are good for demand and spending, but lower inflation and interest rate expectations after tightening and slow growth could lower spending because people would wait for prices and interest rate cut to bottom-out further reinforcing lower price and interest rate expectations and recession and slowdown....