Friday, February 22, 2008

Cheap money floating

Unfortunately, the trouble that we are in now can be backtracked to the very same year. In this year, with the Fed and other central banks cutting rates like there was no tomorrow, the whole world went on a binge. The cheap money floating around not only went on to fuel bubbles across asset classes, but also triggered inflationary pressures. Then there was a series of rate hikes to fire-fight inflation, which stemmed the long streak of cheap money sending the financial and asset markets in a tizzy. Rising interest rates saw the US housing sector cripple and defaults crashing through the roof. Over indulgent bankers that extended credit to sub-prime borrowers saw their assets turn bad as interest rates continued to rise. Well, if the recent crisis were given a chance, then it would choose Greenspan as its most accurate alibi.

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