Where Are We Headed Part 2

But then the sun will go down again!

In a continuation of my previous post, where I somehow feel that the world is heading into a period of stagflation, let me justify that this was made based on three critical assumptions, where the fulfilment of all three (not either one) would definitely plunge the global economy into a period of stagflation;

Assumption 1 ;

If America fails to reduce and control its fiscal deficits; the downgrading of the American bond is not as much of a threat when compared to its inability to control its own budget. What happened subsequent to the downgrade was the lost in investor's confidence (from individuals to small companies) since, if the market really thought that America couldn't pay its debt, China would already be on a fire sale since they are America's biggest lender.

Assumption 2 ;

That unless Europe either kick the shit out of Greece out of Europe (for failing to meet their fiscal target), increase European Financial Stability Fund's funding capacity, or actually act as a fucking United Europe instead of whining like a bitch about how they have to pay for the other countries' fuckups, the region's continued instability posses a massive risk to the global economy. To put it simply; they need to stop being politically divided and stand united.

Assumption 3 ;

Unless China controls its rate of inflation, the global inflation rate would continue to rise. This is simply driven by the fact that the Chinese just manufacture too much shit; everything for $1 dollar. If the domestic prices continue to increase, then this would gradually lead in an increase of prices for their exports. Then, we can start getting ourselves busy by digging our own graves.

Luckily, it seems that China's inflation rate seems to be cooling off of late, and by the looks of it the government plans on putting their consistent interest rate hikes to a halt to accomodate growth. But the prospects for America still looking uncertain as they plan for another massive job growth package, while at the same time, urging European countries to bail out their debt-riddled neighbors under the pretext that "stronger members should absorb the costs; else, the regional effects would cost much greater". As Assumption No. 3 slowly cools off, we still have the first two to worry about; would we still be headed towards a global stagflation?

By the looks of it, the indicators are too strong to suggest otherwise.