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And what is the result? On Friday statistics showed a strong inflation growth, so the reduction has been completely offset. Moreover, the way out of recession, into which the US economy is gradually sliding, will be quite difficult at the growing inflation rate. The FRB shall, on the one hand, reduce the rate in the near future to support the economic growth, but on the other hand this cannot be done with the current inflation. The dollar rose due to this data as they show the necessity of the rate increase and not reduction. The stock markets have been falling since Tuesday. The close on Friday did not bring any good news. The Dow Jones was in the minus for 1.32%, SnP 500 for 1.37%, Nasdaq for 1.23%.
The Russian stock market also fell. The decline has been taking place for three sessions in a row.
The dollar is gradually regaining its losses from the recent months. Crude oil is being traded at around 90 dollars per barrel. Gold fell to 785 dollars per ounce, silver - 13.70 dollars per ounce.
How is America going to get out of these complex self-inflicted economic problems is not clear. Most likely it will use all kinds of manipulations and tricks to hide inflation, strengthen the dollar and will use the printing press to its full capacity. Until recently this option has always been acceptable, but due to the existing mortgage crisis, the attractiveness of this solution is doubtful. An executive of Fannie Mae mortgage company explicitly stated that before the end of 2009 the crisis is unlikely to end. Therefore, both financial and building sectors will suffer. How it is possible to talk about the economic growth in such case is not clear. Sooner or later the bubble will burst. Currently we are observing the first stage of this process.
What is going to follow? Apparently after a small correction the gold price will start growing again. The US stock market will continue to grow exceeding this year’s high only if the republican administration is replaced.
We should also note that the USA is not the only player experiencing problems. Another major player, People’s Republic of China is having problems too. China surprised the whole world with the extent of its economic growth, but inflation and heightened internal borrowing can drastically weaken its economic prospects. This scenario is confirmed by the falling of the stock market by 18% within two months and this is after more than a fivefold increase over two years. It is possible that the high has already been reached and further growth with the same rate is unlikely.
So, interesting times are ahead, though Russians can hardly be surprised by this forecast.
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Return Analysis
