* By Polar Bear
The oil price spike has heightened public awareness of inflation. Certainly, consumer prices, especially staples, have risen markedly over the last twelve months. However, popular awareness of a trend occurs near the end rather than the beginning.
Inflation is reflected in rising asset prices, and, over time, in rising consumer prices. However, its essence is credit expansion. Can official action sustain credit growth into the indefinite future?
Despite the heroic efforts of the US Federal Reserve in the face of the "sub-prime" crisis, it appears unable to reverse the contraction in the money base and broader money aggregates. The widespread notion that the Federal Reserve can embark on monetary expansion at will is not sustained by reality. Through repurchase agreements and facilitation of commercial bank borrowing at the discount window, the Federal Reserve is seeking to sustain liquidity in the banking system. So far, it would appear to be "pushing on a string".
On the international stage, the jury is still out, given continued monetary expansion in China. However, the continued decline of the Shanghai Composite Index may be an early warning of a coming contraction.