Just had a thought. I read that inflation in the US in May was 0.5%, in June 1.5%. These figures are NOT annualised. These figures indicate significant inflation of at least 8% (with it being more than 2% in 2 months, 8% is my conservative estimate). US banks currently lend money at 5-6%, despite the fed having reduced the official rate to much less than that. If banks continue lending money below the inflation rate, they will lose money. So, they will probably need to raise their rates to stay in business. This will add an additional pressure on the subprime mortgage owners, the whole US and world economy, and the US dollar.
People with money in the bank do not like receiving interest that is far less than the exchange rate, either. I have not checked the rates for term deposits in the US, but they would have to be less than what the banks are lending their money at. Let's say, again conservatively, that one can get 3-4% per year. With inflation significantly higher than this, the people with the money in the bank will not like it. With inflation as it is at present, they will, much like the banks, also lose money. They are not going to like it. With the property market on the slide, with the sharemarket looking risky in most sectors, with the interest paid by the banks being below the inflation rate, where can these people go? Well, at least some of them will go for gold IMHO, but please do not rely on my analysis and DYOR.
Regards, Dratoz
IGR Price at posting:
0.0¢ Sentiment: Hold Disclosure: Held
