Tuesday, 18 December 2007


The consumer loaded with debt still disconnected with reality...

Slowing economy (Stagnation) and rising prices (Inflation) gives the unwanted "stagflation."

"We are beginning to get not stagflation, but the early symptoms of it,'' Greenspan said.

In time when the economy is slowing or loosing momentum, the Central Bankers used to lower interest rates to "kick start" it. At a time when inflation is high or getting dangerously out of hand, this is not an option unless Central bankers have the confidence that inflation won't be a threat. Remember the ECB mandate is to maintain inflation at around 2%.

We are not any more in the mid 90's or in the beginning of this decade where high inflation was a temporary phenomenon. Now with high food price, high oil price, high house price, high...well everything...lowering interest rates is like throwing oil on the fire.

"Wheat rose above $10 a bushel for the first time, bolstering prices for other grains and oilseeds and stoking inflation." reported Bloomberg.

Again it won't be the 10% wealthiest that will be hit first but the rest. The purchasing power of the "middle" class and the poor has been eroded at a fast pace.

I'm afraid the central bankers overconfidence have let now the genius out of the box. By allowing cheap credit for too long it created an unprecedented World Wide Economical boom that is now putting a stress on all sorts of commodities.

By providing unlimited liquidity they have managed to drain at a record rate the limited amount of commodities.
In order to sort that out, let's just hope that they won't take the path they did in the late 70's or 80's... if so, the housing market will, with no doubt, know a hard landing...

Source: CNBC

No comments: