Kenneth Rogoff from Harvard, the former Chief Economist of the Interational Monetary Fund said in a speech that the worst was yet to come in the United States.
"The worst is yet to come in the U.S... The financial sector needs to shrink; I don't think simply having a couple of medium-sized banks and a couple of small banks going under is going to do the job.''
In an interview with Bloomberg, he said:
"Like any shrinking industries, we are going to see the exit of some major players...We're really going to see a consolidation even among the major investment banks.''
None of this portends well for the economy. He went on to say that despite this glum economic picture he was worried about inflation.
``Rates are too low. They (The Fed) must realize we're going to get inflation if things stay where they are. They need to raise rates but I don't think they are going to because they're way too nervous.'
This of course made me wonder. How can we get inflation is the economy is so awful? Won't slowing demand push prices down? Won't unemployment limit the ability of employees to get raises? Of course, commodity prices can continue to rise but even they will come under pressure as demand drops. Look what's happened with oil.
Look for my article on Richard Fisher and his views for more on the relationship between a slowing economy and inflation.
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