INFLEXION POINT

We are at an important inflexion point in world economics. The repercussions of international free trade with developing countries, coupled with years of easy monetary policy, are upon us, and the near term prognosis is not good. Upward momentum of inflation has taken hold - a trend which is very difficult to reverse. This is particularly true because the pressure is coming from finite supplies of natural resources. It has been said by many economists that the recent rise in inflation is not as serious as past cycles because we have not seen much carry through in wages. However, this cycle of natural resource shortages, and increasingly higher prices, could prove to be even more damaging than traditional wage spiral inflation.

The question of whether we going to have a ‘soft landing’ or a recession seems to have finally been answered. Goldilocks has been banished from Main Street and is rarely heard from on Wall Street these days. Now the debate is whether the economy is entering into a minor contraction, or a deep and prolonged recession. Yes, we have probably entered into a recession, though it won’t be official for many months. How deep and how prolonged, no one can say for sure. In fact, we may come out of this cycle in record short time, so that it barely registers as a blip on the charts. What we do know is that some segments of the economy are having severe dislocations - real estate and financial services. Yet other segments are surging ahead – agriculture, exports, mining. So, as usual there are no absolutes and there are different shades of gray. The crucial issue for the next two quarters is not whether we’re in a recession or a slowdown, but its severity and duration.