February 19, 2004

Quote of the Day: Apocaholism, or Just Reality?

If your friends are looking at you like you have a third eye because you happen to think the world's financial system is undergoing some serious stress, don't worry. You're in good company. That doesn't mean you're addicted to bad news, or even hope that it happens. I certainly wish for a stronger dollar now that my cost basis is euros. But what a weak dollar has forced me to do is scale back how I spend money. Not that I was lavish before. But Paris is expensive, and a weak dollar doesn't help. I believe I'm on the leading edge of a storm where everyone's dollars lose purchasing power, not just expatriates like me here in Europe. It's going to be a radical adjustment for people--especially if they've spent too much or borrowed too much. True, inflation helps out debtors. But if it also means your cost of living goes up much faster than your income, it's not benign at all. From Stephen Roach: Central Banking Discredited "They are yesterday’s heroes. Central banks ruled the world during some 22 years of disinflation. But like most champions, they have overstayed their welcome. The world’s major central banks — the Federal Reserve, the Bank of Japan, and the European Central Bank — have squandered the capital they built up in the long and arduous war against inflation. And now, with their policy arsenals dangerously depleted, they are woefully ill-equipped to cope with the ever-daunting complexities of a post-inflation era. Bondholders beware: Your once-proud defenders have met their match. I fear modern-day central banking is on the brink of systemic failure."


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