Central Banks cooperate with interest rate cuts
Bank of Canada dropped its interest rate 25 basis points on Tuesday. Today the Bank of England cut its interest rate after five hikes since August 2006.
Since all the world's Central Banks are collectively lowering interest rates to ease the credit crunch, the dollar in theory won't crash relative to other currencies. I'm no economist, but the prospect of global stagflation - runaway inflation combined with a weak global economy exacerbated by the credit crunch - might be a risk. Stagflation has never happened on a global level before.
Here's my take on the global risk. The subprime debacle has demonstrated how credit problems arising primarily from the US can impact the global economy, both on a macro- and micro- level. The solutions for the global crisis are also being tackled by the Central Banks in unison. The Armageddon hawks seem to believe that a global crash will be preceded by a series of falling dominoes - first, the US recession and dollar devaluation, then collapse of the Chinese equity bubble, etc., etc. It may be naively optimistic, but I see the global economy integrated for survival. Every country (except North Korea) is affected and, in the spirit of game theory, will do what is best to prevent the dominoes from falling. If stagflation does become a risk, the global economy could potentially act in accord to develop "whip inflation" policies. The hawks will say "easier said than done", but the truth is no one can predict how the global economy will function going forward.
Here's yesterday's commentary from one of my favorite, more extreme hawks - Nouriel Roubini - supporting the collective action of the Central Banks to lower interest rates. He's proactive in proposing solutions to deter the hard landing he foresees.
Since all the world's Central Banks are collectively lowering interest rates to ease the credit crunch, the dollar in theory won't crash relative to other currencies. I'm no economist, but the prospect of global stagflation - runaway inflation combined with a weak global economy exacerbated by the credit crunch - might be a risk. Stagflation has never happened on a global level before.
Here's my take on the global risk. The subprime debacle has demonstrated how credit problems arising primarily from the US can impact the global economy, both on a macro- and micro- level. The solutions for the global crisis are also being tackled by the Central Banks in unison. The Armageddon hawks seem to believe that a global crash will be preceded by a series of falling dominoes - first, the US recession and dollar devaluation, then collapse of the Chinese equity bubble, etc., etc. It may be naively optimistic, but I see the global economy integrated for survival. Every country (except North Korea) is affected and, in the spirit of game theory, will do what is best to prevent the dominoes from falling. If stagflation does become a risk, the global economy could potentially act in accord to develop "whip inflation" policies. The hawks will say "easier said than done", but the truth is no one can predict how the global economy will function going forward.
Here's yesterday's commentary from one of my favorite, more extreme hawks - Nouriel Roubini - supporting the collective action of the Central Banks to lower interest rates. He's proactive in proposing solutions to deter the hard landing he foresees.
This is a good thing. Makes the future look a little brighter.
It will be a long process rebuilding the market but it's definitely a start.
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This is good news. As Atlanta Luxury mentions what is going on right now with interest rate reductions and government programs is just a start to getting us back on track. The foreign cuts should help ease some risk in our cuts causing inflation and devaluation of the dollar.
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