Breaking Point

http://money.cnn.com/2005/09/02/news/economy/
katrina_widerimpact/index.htm

http://www.economist.com/agenda/displayStory.cfm?story_id=4362200

This blog has attempted to describe the fundamental economic imbalances they have layed the foundation for a severe and extended world recession driven primarily from the US economy, but with aggravating factors present in many other western economies.

The key factors have been:

• chronic growing indebtedness,
• negligible savings,
• reckless expansion of the money supply,
• and related non-CPI inflation,
• speculative asset bubbles.

The previous post referred to oil. The first real casualty of extended monetisation and first effective and natural break on the world economy. The post prior to that, referred to the Chinese government's decision to rebalance the Yuan away from a US dollar peg.

If Katrina does indeed prove to be the precusor to the expected economic implosion no doubt many will make the argument that the recession was because of Katrina. The recession was not. That is like driving a car at high speed towards a wall and then blaming the wall for your broken legs.

I cannot see flexibility the US Federal Reserve has in lowering US interest rates, without precipitating a run on the US Dollar.

The US economy, in particular, has already been brought to breaking point. This hurricane potentially marks that spot.