JUST when it seemed things couldn’t get any worse, they did. The Federal Reserve Board’s economists revised their growth estimate down, and their inflation forecast up. The dreaded word “stagflation” has begun to make its appearance, reminding those Wall Street analysts old enough to remember that in the 1970s the economy experienced 15% inflation, 9% unemployment and three recessions.
Those who want to update their financial vocabularies further should also take note of the new buzz word, “contagion”, used to describe the fact that sub-prime problems are spreading to other parts of the closely interlinked credit market, such as credit cards and non-sub-prime mortgages.
Add “decoupling” to your lexicon and you will be au courant: analysts who confidently predicted America’s problems would not spread, are now less certain that the US economy is decoupled from the rest of the world. That’s why BNP Paribas economist Ken Wattret said that “all the reliable leading indicators of eurozone economic growth point to even worse news ahead”.
And why Mario Draghi, governor of the Bank of Italy and head of the Financial Stability Forum, said of write-downs by Europe’s banks, “it’s not over yet”.