Financial Markets & the U.S. Article Review

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The PowerPoint on inflation states that inflation takes place when prices rise across the board in the economy; oil prices going up can influence many other consumer items. And in the Financial Markets PowerPoint, it points out that depository institutions (banks) need capital so they can make loans. But in the Times' article, writers explain that in recent weeks there have been "...a string of unpleasant reckonings for major Wall Street banks." Several big Wall Street banks have had to "...slash billions of dollars from balance sheets to account for losses in the mortgage market."

What that means is that many people are not able to make their mortgage payments, so the money banks have loaned those people cannot be repaid to the banks, and hence, the banks write off lots of money. This is a sad state of affairs, and one wonders what the Bush Administration is going to do about it. Also in the Times' article is that Xu Jian, the vice director of a major Chinese central bank, is quoted as saying the dollar was "...

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losing its status as the world currency."

All of this information is very closely related to what we studied in class, because what happens to the dollar here and in foreign financial markets eventually has an effect on how much we have to pay for our needed consumer items. The article also says - and here is where inflation comes into the picture - that "...a further weakening in the dollar could sow inflation, as the impact of higher-priced imports - oil in particular - filters through the economy."

You've basically got capital market jitters about the United States," said William R. Cline, with the Peterson Institute for International Economics in Washington. And when people in high positions of finance have the jitters, consumers at the local level should wonder why, and ask questions to remain informed.

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