It is sometimes easy for those in the financial world earning salaries in excess of one million pounds sterling to forget crucial linkages that define the success or failure of specific issues of financial instruments, whatever their role. These linkages are bridges between the real and financial economies. It seems that in the current credit crisis, many financial managers have forgotten that the main goal of a central bank is to ensure that inflation is kept in check. This role almost certainly ensures that incomes are also kept in check and with that the profitability of companies. It means that actual financial income growth correlates very closely with non inflationary growth in the real sector. The bottom line is that real incomes need to grow if finacial incomes are to grow and if financial incomes get out of line with real incomes a correction is almost certainly going to happen.
Scratches to Sketches
Wednesday, 17 September 2008
The Importance of Linkages Between Financial and Real Markets
It is sometimes easy for those in the financial world earning salaries in excess of one million pounds sterling to forget crucial linkages that define the success or failure of specific issues of financial instruments, whatever their role. These linkages are bridges between the real and financial economies. It seems that in the current credit crisis, many financial managers have forgotten that the main goal of a central bank is to ensure that inflation is kept in check. This role almost certainly ensures that incomes are also kept in check and with that the profitability of companies. It means that actual financial income growth correlates very closely with non inflationary growth in the real sector. The bottom line is that real incomes need to grow if finacial incomes are to grow and if financial incomes get out of line with real incomes a correction is almost certainly going to happen.