Tokyo sees finance ministers arrive

”Finance

Finance ministers from the G7 group of nations have begun to arrive in Tokyo for weekend talks, which are bound to be dominated by a downturn in the world economy.

While predictions for economic growth for major industrial nations around the world have already been cut, the problem addressing the delegates will be how to stave off recession without leaving inflation unchecked.

Bank of England governor Mervyn King, and the European Central Bank’s Jean-Claude Trichet, have both stressed concerns about strong inflationary pressures.

Rising prices in energy and food are especially a problem, as consumers already heavily laden with debt are focusing more on necessities than luxuries, as Wal Mart spelled out with its report yesterday.

The resulting downturn in consumer spending has led to fears of a recession.

Unfortunately, while some banks have cut interest rates, the danger is that rather than addressing immediate economic problems, they are instead simply drawing them out – and additionally, creating potentially larger economic problems in the longer term.

As the era of cheap fuel has already closed, and the era of cheap food appears to be closing as well, inflationary pressures remain a real danger.

This is especially when cutting interest rates continues to focus consumers on spending rather than saving, the problem being that the boom years of low interest rates of the past few years have almost certainly left most consumers spent up and laden with debt – the cost of which continues to rise.


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