• Firstly the velocity of the new money being pumped into the traditional banking system may be much lower on its previous path through CDO, CDS and subordinated debt agreements. If this is so, the inflationary impact will certainly be less.

• Secondly there is both momentum and inertia in the existing money flows (like a charging bull elephant, the market can't speed up, slow down or change directions very quickly).

• Thirdly, the Asian central banks are indeed still tied to the US economy by the naval. While they would love to dump the USD, to do so would not be in their own short to medium term interests.

So what does this mean for Australia? If Asian and European export to the US slow down, and they will, resource prices must take a significant hit. The relationship between supply volume and price is not defined by a straight line graph. Say if demand for a product falls by say 5% the market could respond with a price drop of 10% or more. Profit margins of some resource operations could evaporate that easily. However in the short (1 year) to medium term (2 years), Australia is protected by forward contracts and a lot of underlying economic momentum. Existing infrastructure cannot satisfy demand and an unsatisfied demand for skilled workers is putting significant upward pressure on prices. Even commercial and residential property predicted to be in undersupply (although I can’t understand why). And in 3 years time, international economic conditions may or may not have improved - I really don’t know. While I expect some minor interest rate rises – the Australian Government cannot raise rates my the amount required to keep a lid on inflation and protect the currency. This is because Australian voters are (like their American cousins) in far too much debt to tolerate a significant rise. It would be politically easier to follow the Americans into a cycle of inflation – but unlike America there is enough underlying pressure on wages to trigger a 1970’s style wages price spiral that will by itself push interest rates up. To sum up – inflation, uncertainty, a relatively weak currency (against everything but the greenback) and continued export strength for the next year or so..

but, what dan says about america makes perfect sense to me.

i have $29 cash in hand and no place to dump it today.

oh, forgot! off to ebay time to buy some time....