Busted: Bankers and The Global Economy

May 9, 2008

Some Say Inflation No Big Deal

Some are saying that inflation is of little or no importance and that the credit crunch should be first priority. “Inflation rates are expected to remain high for a rather protracted period of time before gradually declining again,” European Central Bank President Jean-Claude Trichet said at a press conference. That is the line many central bankers are saying.

As painful as higher prices are for Americans, there’s reason to believe that economic weakness will be a heftier burden for the economy as the year goes on. Some economists and bankers readily acknowledge that the national economy hasn’t taken the hit yet.

Banking standards are tightening and less money is going into the economy, instead being used to shore up the banking system. The Federal Reserve has nearly exhausted the ability to lower interest rates in the opinion of many.

Falling home prices are good for buyers, but steep drops portend lots of trouble for the economy. There are reasons to be concerned about government financing companies, Fannie Mae and Freddie Mac. The recession could lead to growing job losses and growing defaults, which will push on the companies’ equity cushions. Shareholders could be wiped out with a 5% drop in mortgages, creating the need for a government bail-out. These agencies have had all kinds of trouble with bookkeeping in the last few years which could result in larger problems.

Real inflation rates have averaged at 10% for the last thirty years even though the Fed and the government has continued to insist on 3%. Now that inflation is really out of control and close to 20%, the American public can easily see the effects on prices and the general unrest of the economy. Your can thank greedy bankers, mortgagers and runaway investors for overheating and breaking down the system for everyone on a global basis. Since rising prices are a product of inflation, you can bet that inflation is important after all.

Nobody is talking about devaluation of currency, which is as large of a problem as inflation.

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2 Comments

  1. “Fascism is capitalism in decay.”

    Comment by smartguy557 — May 9, 2008 @ 3:46 pm

  2. When the cure for all problems can only be to lower interest rates and dilute the supply of the money by creating more money, then that is a vicious cycle consistent with acceleration or hyperinflation.

    I really don’t like it when people casually compare what is going on right now to 1929, because in 1929 the cure was basically to spend less and now the cure is basically to spend more.

    Comment by CraigHarris — May 9, 2008 @ 8:45 pm


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