Thursday, August 27, 2009


INFLATION: Almost all governments whose economies have been adversely affected by the
financial crisis have been providing all kinds of stimulus to minimize the impact of the liquidity and
credit crisis on their economies. Historically, that is how nations have tackled their debt burden and
this episode is no different. The aggressive actions taken by governments may have prevented their
economies from going into a Depression. The government-infused liquidity is countering some of
the deleveraging and credit freeze in this crisis, but in the longer term, such actions can bring huge
unintended consequences including the return of high inflation and the likely debasement of the U.S.
currency. We don't know the timing of it but all that excess liquidity will have to go somewhere
when normal times return.