Inflation, recession or both?

It is interesting to see that our Fed has changed its policy of the last two years and decided that inflation is no longer its primary concern. It has just lowered the discount rate and most likely will lower the fed funds rate as the mortgage and financial markets worsen. Apparently it has decided that a recession or worse was much more likely in view of the sub-mortgage markets failure, its impact on the economy and the loss in liquidity in our financial markets.

China has recognized the potential problem of inflation and has just said it will raise its benchmark deposit and lending rates as part of its efforts to stabilize inflation expectations and control credit. The one-year Yuan lending rate will rise 0.18 percentage points to 7.02% and the one-year Yuan deposit rate will increase 0.27 percentage points to 3.60%. The increases recently took effect.

The Chinese government appears to be more responsible in management of its financial assets and control of its economy then here at hme. The massive deficit spending and budget deficits we incurred in the past and are incurring are difficult to recover from without having significant problems in the future . A severe recession, or worse, is in the cards. It is jsut a matter of time.