The Spring of Discontentment

Ejaz you have presented a more technical and if I might say a microeconomical view of the things. What I ahev presented is the fundamental analysis and the underlying reasons for this economic meltdown.

Its so ironic that only people without formal training in Economics are able to comprehend the phenomenon lucidly because modern education, that has effaced the basis of sound money, has just rendered modern economists incompetent and impotent.

As far as energy prices and outbidding of third world countries is concerned, Pakistan just experienced its Winter of discontentment with no electricity, no gas and no water in many parts of Rawalpind, Karachi, Lahore and Peshawar.

Once the scramble for Energy resources begin...the third world countries would find themselves outbid...even at $150 per barrel Indian and Chinese industries would coming to a grinding halt...moreover the cheap bonanza of cheap goods manufactured in Bangladesh, Malaysia, Vietnam, china and exported half-way around the globe to Europe and U.S. would come to an end...

WTH? … trying again …

Here’s the web address ….

http://www.energybulletin.net/12125.html

Here’s another attempt to post the live link …

This theme has been coming up more and more recently. Here is a link to a bit dated article with similar ideas … one which also explains the subtle reasons for going to war against Iraq.

Good points. The most recent spate of commodity price increases (everything from wheat to oil to gold) occured starting August 2007. This is when the Federal Reserve decided that the balance of economic risks had shifted from being evenly balanced between growth and inflation, to being more weighted towards the risk of an economic downturn. The hope was that cutting short term rates would prevent transmission of a financial crisis into the broader US economy, while inflation would be contained as aggregate demand cooled. Unfortunately the reality has been an upsurge in inflation and no contraction of credit spreads, so longer term interest rates haven't dropped like they should have, which means most interest rates in the economy have not gone down as much as Fed Funds have. Since credit is hard to get and the cost of credit overall hasn't come down much, we may be headed for a recession after all, but thanks to all the Fed rate cuts we will also have a reduction in purchasing power. In other words, stagflation.