Saturday, July 05, 2008

Interesting Graphs.

Looks like the government is baking in a large precipitious decline in energy consumption as a result of an ever increasing deflationary enviornment, leading to a substantial price decline from the current highs. This scenario, like most things in economics, has its pros and cons. But for me, its mostly a con, as a deflationary enviornment in the real economy would filter back into the banks and lead to more writedowns on credit card loans, auto loans, and the esoteric instruments and markets currently being disrupted - the eventual outcome being bank failure(among the regionals). Plus, even with a decline in the amount projected, it offers little hope for restitution among the consumer - energy consumption as a percentage of GDP will still be at record or near record high levels. The net result is the deleveraging process among banks has a long way to go, as does consumer suffering, and as we know - home price decline. A vicious vicious cycle - from the financial sector to the real economy, from the real economy to the financial market, and back to the real economy. When will the cycle end?


Blogger John Liberty said...

meant "financial economy' not financial markets or financial sector

5:00 PM  

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