Tuesday, October 14, 2008

Bank nationalization could worsen inflation

US President George W. Bush's $250 billion plan to nationalize banks will infuse money into the system and could trigger an increase in inflation.

The trend indicates that probably much more money will be needed in the future, so the money supply will continue to grow at a rapid rate as debt climbs. Interest rates will likely be kept low further putting pressure on inflation.

In the end, at least $1 trillion in additional money may be needed to prevent widespread bank failure through nationalization i.e., by shares in failing financial institutions. The law of supply and demand suggests that when money floods into the system, prices rise.

Inflation may actually ease in the short run as oil prices have dropped on fears that the slowing economy will decrease demand for petroleum. However, oil-producing countries have been hit hard and are likely to decrease production to lessen the impact on their own economies. This should stabilize oil prices.

Times Online

Bush Defends Bank Nationalization
Washington Post, United States - 3 hours ago
The government's $250 billion direct investment into banks in essence forces nine of the largest to accept what amounts to a partial nationalization. ...
US Follows Europe in Partial Bank Nationalizations Spiegel Online
Burst of optimism and a record rally Chicago Tribune

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California Gov. declares fire emergency

Three wildfires in the Southern California region around Los Angeles killed two people and burned down dozens of homes by Tuesday morning.

Gov. Arnold Schwarzenegger declared an emergency in the area as strong, dry Santa Ana winds are expected to continue driving the flames until Wednesday evening. Some 10,000 acres have burned and 1,200 people were forced to flee their homes.

California battered by wind-whipped wildfires
The Associated Press - 1 hour ago
LOS ANGELES (AP) - Powerful winds stoked three major wildfires on Tuesday morning after destroying dozens of homes, forcing thousands to flee and leaving two people dead.
Schwarzenegger Declares Emergency After Los Angeles Area Fires Bloomberg
Heavy winds could help grow wildfires, US officials warn Trend News Agency

 California Governor Arnold Schwarzenegger has declared a wildfire emergency as another surge of Santa Ana winds are stoking three major wildfires that have already charred more than 11,000 acres. (Oct. 14)Play
Calif. Gov. Declares wildfire emergency
AP via Yahoo! News - Oct 14 3:41 AM

 Californian firefighters are battling two wildfires which are threatening neighbourhoods close to Los Angeles.Play
Fires threaten California
BBC via Yahoo! News - 2 hours, 4 minutes ago

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