Daily Archives: September 20, 2008

By Andrew Smithers

The aim should be to avoid a deep recession or prolonged weak growth, and to avoid a rapid recovery, which would induce a rise in inflationary expectations. This means a year or more of sub-trend growth, i.e. GDP plus or minus 1 per cent per annum. I think we have a good chance of muddling through, but at the moment the risks of inflation are surely much less than the risks of a deep recession. If that occurs the cause will be inadequate credit growth induced by the inadequate equity of banks and also, very importantly, inadequate profit retentions to support balance sheet growth. (As the latest FDIC report shows, US banks had negative retentions in the first half of 2008.) Read more