We have seen an unbelievable situation occur in the last year.

On one side we had interest rates under pressure to remain high because of inflation, on the other we have a falling housing market, plummeting spending on the high street, and a lack of spare capital.

Inflation was being caused by speculators on commodities.

Speculators bought up large positions in commodities such as oil, copper, wheat etc. As a consequence these goods quadrupled in price.

We then felt the result via increased inflation, but could do nothing about it.

I have pointed out that inflation would die when these speculators felt they were close to the top.

The reason for this is because many of them had bought their commodities on margin. This means they had borrowed up to £92 of every £100 they had invested in commodities.

If the price of commodities starts to fall, these deals will go pear shaped, and the loss would be exponential.

And so there would come a time that commodities would be dumped, and that would be when the market was close to its peak.

It has reached that in my view. As the commodity deals close, commodities like oil, wheat etc will collapse in price and as such inflation will fall off.

So much so, inflationary pressures could easily become deflationary problems.

As a consequence, a reasonably forwardly thinking, and well informed government might consider reducing interest rates as early as November to introduce capital into the system and free up spending.

This is essential. I am pretty confident this will happen within the year and into next year there will be further sharp falls.

There will continue to be further pain with the tail end of a recession but that will wash its way out over the next 18 months.

Now why else might I be so confident?

Well I may be cynical, but much noise exists from the government about how bad the situation currently is.

One might think they are not being helpful with that noise. One might also think they are actually bringing forward the inevitable. ‘Get the recession over with now and ready for an election’ might actually be a good plan. Cynical or not, consider it.

Now we all now that economical changes take a good 18 months to flow through the system.

Eighteen months from the expected date of the election (May 2010) is actually November 2008. Great work Sherlock!

Remember everyone was explaining that oil was driven by supply and demand and hurricanes (I seem to remember we have been having these for years, even as far back as the wizard of Oz).

i have said that investments in commodities in index traded strategies was at its highest in 2003 at $13b. In 2008 it reached $260b.

Much of this was bought on margin and when they are dumped expect the above to happen.

http://www.wwfp.net/mortgage/mortgage-broker.html