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Andy Xie: Central Banks, Arsonists and Playing with Fire

October 29th, 2009 Michael McDonough

Here is another article by Andy Xie–always an interesting read–former Morgan Stanley economist, who predicted the credit crisis well before it came to fruition.  In this article Andy highlights how money supply growth is supporting a boom in asset prices, which in turn is bolstering the economy.  He goes on to compare central banks supplying money to ‘arsonists’ who have now ‘been asked to put out the fire’.   In conclusion he says:

A word of caution for all would-be speculators: You’ll want to run for your life as soon as the bond market takes a big fall. And the case for a double dip in 2010 is already strong. Inventory restocking and fiscal stimuli are behind the current economic recovery, and when these run out of steam next year, the odds are quite low that western consumers will take over. High unemployment rates will keep incomes too weak to support spending. And consumers are unlikely to borrow and spend again.

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