Yesterday, US Treasury Secretary Henry Paulson said there was no silver bullet. He was referring to the first stage in the central bank’s plan to pump money into the economic system, which kicked off last night. Yesterday, the Fed unleashed credit, today it’s the turn of the Bank of England and European Central Bank. So far, it appears the markets have been unimpressed, but there are signs that the approach may be gradually working. Sure, interbank rates have started high, but bit by bit they have been falling.
But if the plan announced last week by central banks is no silver bullet, does the miracle cure exist elsewhere? Yesterday came news that the deficit on the US current account had fallen to the lowest level in two years, as exports grew strongly. Maybe the falling dollar will enable Uncle Sam to export his way out of trouble after all.
Then again, as the friendly eyes of hope appear while all around there is fear, the inflation beast strikes again. This time it’s soaring food prices that are ringing the alarm bells. No need to panic, though, says Capital Economics, the current round of rising prices still falls into one-off territory.
The real blow seems to come from the housing market, with three pieces of news that broke yesterday providing more reasons for alarm.
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