With the US Fed cutting aggressively, and now a reasonably large US fiscal package a near certainty, the mainstream will see increase in US demand as further support for world prices.

They have no economic theory to support this.

In fact, mainstream theory would more likely be inclined to call this policy subversive, as it sees inflation as the primary risk to optimal long term growth and employment. And they see the real costs (in terms of lost output) to bring down inflation, once allowed to elevate, as far higher than any possible near term gains from adding to demand in the short run.

Highlights:

EU’s Almunia Says Inflation ‘Is on the Rise’ Due to Oil Prices
ECB’s Weber Doesn’t Expect Inflation Far Below Ceiling in 2009
Liebscher Sees Prices Easing by Year-End
ECB Says Banks Expect Funds Squeeze in Coming Months
Trichet discounts productivity gain
German Economy on a Solid Foundation in 2008: Finance Minister
French Growth to Be About 2.25% in 2008, Sarkozy Spokesman Says
Spain House Price Inflation Slowed to 4.8% in Fourth Quarter
Spanish Mortgage Lending Growth Decelerates to 15% in 2007
Portugal’s Dos Santos Says Slowdown May Be Worse Than Forecast

♥

Leave a Reply