Monday, April 14, 2008

The future is bleak.......?

Food riots in Haiti……. Crude oil prices hovering at 110 and likely to push higher…….. US, the world’s largest economy, in recession and perhaps pushing other economies around the world into depression…..

The reasons for this have already been analyzed by a lot of people. What I am concerned about is the effect this global upheaval is going to have on us. And that depends on how the crisis unfolds in the near future. What I see at the moment is the Fed keeping up its efforts to avoid a catastrophic event like a major Bank failure, by providing liquidity injections and keeping interest rates at low levels. I tend to think that accelerated inflation is the most possible outcome of the Fed’s current efforts.

This means that commodity prices around the world will shoot up, which will make it harder for the world’s poor to feed themselves and might cause political uncertainties in developing countries. Economies around the world that have been doing well because of their hard or soft exports to the US will go into recession, which may lead to political upheavals. Imagine the Chinese leadership turning hardline and perhaps instigating a war against Taiwan or another of its neighbors to divert its populace’s attention from internal matters. Or perhaps India and Pakistan going to war over Kashmir………. The possibility of a nuclear confrontation is horrifying, but cannot be ruled out.

I would love to be optimistic, but until someone provides me with a reasonable argument of why such a scenario should be ruled out, I will assume the worst can happen and will prepare accordingly.

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