Inflation Statistics Don't Always Tell the Truth | Newsweek International

MARKETS
Goodbye to the Bulls?
1/25/2008 12:00:00 AM
'A Meltdown'Nouriel RoubiniWe know booms and busts are aspects of capitalism, and have been so historically. Many of them have been driven by a technological innovation--whether it was the railroad or the Internet--and they may create bubbles, fraud and eventual losses. But they are also driven by real innovation. This latest crisis we see today differs from such historical examples in two important elements. First, with housing there was no technological revolution of any sort. We still build homes basically the same way we did 50 years ago. The innovation in this instance was financial. We went from a system where banks held mortgages on their books to one in which banks originate mortgages, and then securitize and distribute them. The idea was to reduce systemic risk by getting the risk of holding mortgages out of the banks and into the capital markets, and out of the United States and into the global economy. Of course, as we see now with subprime, that has brought a massive contagion in financial markets that is now affecting the real economy.
BUSINESS | TRUE OR FALSE
The Power to Fix the Economy Rests With the Next President
Daniel Gross
As the presidential campaign kicks into gear, housing, energy and rising unemployment have thrust the economy front and center. Whether they are talking about the need to drill off the coast of South Beach (John McCain), or the necessity of confiscating the profits of ExxonMobil (Barack Obama), each candidate is unequivocally promising voters that come Jan. 20, 2009, should he have the high privilege of succeeding George W. Bush, he will instantly reverse the decline of housing prices, bring gasoline prices crashing back to earth and generally kick the economy back into gear.
A Renegade's Wise Lessons
Robert J. Samuelson
Does Europe Work?
WORLD ECONOMY
The Old Monster Is Back

Can you even remember inflation? It was a long time ago, but the soaring prices that ravaged U.S. and European pocketbooks through the 1970s and '80s may be back. Prices are moving again. Economic growth is actually slowing, even threatening a recession in America. Yet the consumer index in the United States has risen at a rate of 3.8 percent this year. The European index climbed 3.4 percent in May, up a fifth from April. The richest, most coddled 600 million citizens on earth now face a rare double threat: lost jobs and higher prices. Inflation and recession both loom over the West.
FINANCE
Color My Money Green

El Salvador's new currency arrived by ship and plane. Exactly $176 million in fresh, green stacks of Washingtons, Lincolns, Hamiltons, Jacksons, Grants and Franklins was flown in from the United States on five jets. The change--$24 million, including 144 million U.S. pennies--was withdrawn from five Federal Reserve banks and shipped in 40 containers on five freighters. The shipments--the first of many--weighed more than 40 elephants. "In 24 hours you can have $50 million delivered to your front door if you have good contacts with the banks," explains Rafael Barraza, head of El Salvador's newly diminished central bank. On Jan. 1, the government began replacing his country's currency, the colon, with the American dollar. As a result, Barraza's job is no longer controlling the colon but importing greenbacks.