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The inflation part of stagflation has started in full vigor while the other end of recession is about to start – central banks trapped like never before
The Central banks all over the world including US federal Reserve have been trapped like never before by the stagflation in the whole world. The rising energy prices, the escalating commodity prices, exploding demand of cheap raw materials in India and China and imploding deflation in wages in the Western world have caused a scenario never scene or imagined before.
There is a proverb, ninety percent times ninety-nine percent economists are wrong about economies. That is exactly what is happening now.
In stagflation infected economies Federal Reserve or Central Banks become useless spectators. For example, the rise in US short-term interest rates is only causing a slowdown in US economy while inflation is actually driven by India and China. The central bank intervention only makes matters wise during a stagflation.
Indian and Chinese economies are also in trouble. The energy prices have peaked for a year or so although some new marginal highs are possible. But the scare factor is in for every country especially US, India and China. They are now thinking of conserving and doing what not. In that scenario it is safe as a contrarian trader that oil and gas are peaking. But the economies have now a broken backbone. The damage is done that needs a deep recession to undo.
The inflation and recession – how can that be? Yes, that is called stagflation. Prices go up, people lose their job and the wages are deflated – it is just horrible. People in every country can get just poor with significant loss of standards of living.
Indian and Chinese economies are ready for oil and financial mismanagement related shock crash. As the Western world refuses to get exploited by Indian and Chinese oligarchs, India and China will have a trouble finding the large infrastructure costs as Forex reserves in coming years collapse.
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