The past year has been a tricky one for central banks. The credit drought has acted as a brake on rich-world economies and merits a looser monetary policy. But the run-up in oil and commodity prices has pushed inflation to alarmingly high levels. The risk that these may persist argues for a tight monetary policy. The response to these conflicting pressures has been varied. America’s central bank has slashed interest rates, but only Canada has come close to following its lead. Many central banks have raised rates. For commodity exporters, such as Brazil, Norway and Australia, the policy dilemma has been less acute, as these economies are boosted by higher raw-material prices.

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America’s housing market is struggling to recover. The number of housing starts fell by 11% in July, leaving them at their lowest level since 1991. The decline reversed a big jump in June, prompted by a surge in starts in New York ahead of tighter building regulations. The confidence index compiled by the National Association of Home Builders remained at a record low in August.

There are worrying signs of a broadening impact on inflation from past increases in commodity prices. In America factory-gate prices for goods other than food and energy rose by 3.5% in the year to July—the fastest increase since 1991. Meanwhile Germany’s producer-price inflation, excluding energy, rose from 3% to 3.6% in July. ...

Algeria's reconciliation policy is threatened by a spate of bombings Some 60 people have been killed in a series of car bomb explosions over two days in a region to the south-east of Algiers, marking a major escalation in the activity of Islamist underground groups that have acquired new purpose since affiliating with al-Qaida in 2006. The upsurge in violence appears to reflect the concern of al-Qaida's leadership to open up new fronts in the Middle East and North Africa after the serious setbacks that the movement has suffered in Iraq. Some Algerian commentators have also blamed the escalation on the government's reconciliation policy, thereby raising questions over whether the president, Abdelaziz Bouteflika, should be allowed to stay on for a third term. The heaviest casualties from the latest attacks occurred when a suicide bomber exploded his vehicle outside a gendarmerie training college in Issers on August 19th where a large number of prospective new recruits were waiting for the gates to open. The government said that 43 people were killed and 45 injured. The next day there were two car bomb explosions in the nearby town of Bouira. The first, outside a military building, left four soldiers lightly wounded, according to the official Algerian Press Service. The second exploded outside a hotel, and killed 11 people. It was reported that the hotel was being used to house contractors working on the nearby Koudiet Acerdoune dam project. Companies from Canada, Turkey and Italy have been involved in this project, but it was not immediately clear whether any foreign nationals were among the casualties. ...

A deal on missile defences angers Russia even though they may not work THE east Europeans have little reason to fear a strike from Iran. So why are they eagerly signing up to America’s system to intercept Iranian missiles? Because they are scared of Russia. Within days of Russia’s invasion of Georgia, Poland had agreed to host ten American interceptors. Ukraine offered to link up its early-warning radars and contribute to surveillance in space. The Czech Republic had already agreed to host the missile-tracking radar. “We have crossed the Rubicon,” said the Polish prime minister, Donald Tusk, as the deal was done. Russia said any country involved in America’s missile defences made itself a legitimate target for nuclear attack. Condoleezza Rice, the American secretary of state, who went to Poland to sign the deal this week, retorted that such threatening language “isn’t tolerable”. ...

Today Wall Street swing between positive and negative territory but ended about 90 points up.   Crude oil was up, but my main concern was the huge losses in Fannie Mae and Freddie Mac share prices.  Loss of confidence in these two counters and the huge losses in share prices will result in them having more difficulty issuing new stock for liquidity.   Loss of confidence in these companies can kill the mortgage industry and will lead to a government rescue plan which would surely in turn causes huge losses for the retail investors.