The Insolvent Investor

Investing and economics – it isn’t easy.

Our Central Bankers are Failing Us

Posted by Warren on August 9, 2008

Beranke is about to let the monsters out

Beranke about to let the monsters out

A good article in today’s Economist describes how central bankers in the US and Europe may be risking their credibility as effective inflation fighters – arguably their most important function. Asset bubbles, high commodity prices, and a low savings rate have led the US, Europe and Japan into the current difficult economic situation. While Central Bankers have done well to squelch financial crisis so far by propping up banks (Northern Rock), mortgage lenders (Freddie, Fannie), and investment banks (Bear Sterns), those actions will only serve to incent managers to continue to take more risks, and in conjunction with the current low interest-rate environment, will do little to curb inflation brought on by high commodity prices. We’re in for some bumpy economic times for a long time to come.

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