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To: Joan Osland Graffius who wrote (54118)	7/31/1999 4:04:00 PM
From: pater tenebrarum	Read Replies (1) of 86076

Joan, i agree. the massive current account deficit depends on financing from foreign sources. dollar weakness now puts a crimp into foreign demand for dollar denominated assets, and it follows that higher rates are needed to stimulate this demand once more. it looks like the time to redress some imbalances has now come. perhaps we have now merely a bump in the road - if so, the imbalances would eventually continue to grow, forcing even heftier re-adjustments at a later stage. this is also why AG is so keen imo to stress that the Fed will be quick to do it's part; he simply must be worried about the credit and asset bubbles that have developed over recent years, so it is essential that the impression be created that the Fed is on the job. however, financial markets often are subject to dynamics all their own and monetary policy sometimes suffices to counter these dynamics, such as in last years financial crisis, and sometimes it fails, such as in post '89 Japan. it will be interesting to see if AG's confidence in the Fed's abilities continues to be well founded or not. regards, hb

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