Tuesday, October 14, 2008

About this Blog

Economic Outlook 2008-2009: Will Central banks' liquidity injection cause super-inflation?

Central banks' move to guarantee deposits and inject liquidity may produce inflationary pressure, according to some market watchers.

Marc Faber, managing director of Asia-based investment advisory firm Marc Faber Ltd, said,"You have inflationary monetary policies, fiscal policies, and debt growth that will really accelerate."

When asked abot US situation now, Warren Buffett replied: "It's much easier just to inflate your way out of it. If you're a South American or Asian country that owes money in dollars, it gets very binding to pay back in dollars. But if you owe it in your own currency, you just print more currency. And we have the ability to print currency. We can denominate debt in our own currency, whereas many countries can't because people don't trust them."

Paul Volcker (chairman of the US central bank between 1979 and 1987 and credited for battling double-digit inflation that flared in the 1970s) when asked if the massive infusion of liquidity by the Federal Reserve could lead to inflation or stagflation, said, "It's not going to be a problem in the short run. Inflation doesn't flourish in the face of recession. It's something we have to worry about when we get out of this recession."

The question is: Will Central banks' liquidity injection cause super-inflation?

Here are some forumers' views from the Singapore Property Forum:

Bull wrote:
The whole world will reach a super-inflation stage very soon, run for life to dump US$, who throw late who will lose more. US$ will crash, inflation will shoot to sky, US$500/barrel of oil is nothing, so what is $30/plate chicken rice in hawker center, then what is the value of cash? Property in S$ will surge super high.

Bear wrote:
super-huge-inflation + severe-deep-recession = catastrophic-stagflation = Singapore property will crash like never seen before ... this is going to be many times worse than 1996.

Anonymous wrote:
Hyperinflation: bull's latest pet theory. Well, let's see. There will probably be inflationary effects from printing money, but recessions are deflationary. My guess, recessionary effects will probably predominate because governments know they can't afford to have their currecies collapse. (that's even worse than recession).

Derek wrote:
Some people here have been screaming hyper-inflation, whether this is from vested interest or whatever, it does not really matter. However, to dismiss the notion of inflationary pressure offhand from the actions of the central banks across the world may not be completely prudent... so I would really appreciate if other forumers could help chip in with reasoned comments and viewpoints. Thanks!

Anonymous wrote:
Under normal circumstances, injection of liquidity of this scale by central banks would have an inflationary effect. But this is NOT normal circumstances. We are having a credit freeze, a totally different situation from the easy, cheap credits that fuelled the subprime crisis. Banks are moving to the other extreme, they no longer talk about the returns ON their money, they want to be ensured of the return OF their money. Even banks who are willing to lend, they are going to be very stringent, in fact, overly stringent. As such, a flush of liquidity into the economy is unlikely. Besides loans by central banks will be backed by collaterals and other terms and conditions to ensure that banks do not once again become reckless in their lending. The deposit guarantee and liquidity injection by central banks is aimed at stabilising the banking system and once the desired effect is achieved, I'd expect a quick and swift reversal of policy by central banks. Both US presidential candidates have vowed to have greater regulations in the financial system. It's more likely that it becomes over-done in that direction. In other words, expect stringent credit condition to prevail for a very long time.

May also want to read:
History of Singapore Property 1960 to 2008
HDB Resale flats Price Index 1990-2008: Graph & Chart
Property Price Index Graph Plotter & Online Property Valuation
Your Property Investment Determines Your Financial Success in Your Life
HDB Resales: West Sees Highest Price Increase


Post a Comment

Dear visitors:
Your comments are most welcome!

The blogger here has been affectionately named by close allies as "Smart Buyer" but really, he's not smart. Smart Buyer just believes that being prudent is smart. That's the essence of the message of this blog and Smart Buyer hopes it'll benefit other property buyers.

Smart Buyer :)