Given the amount at which the US re: Greenspoon and co have already (inflated) the US$.
Well, it depends on who you're blaming. AG or the foreign capital markets that fled to the US last year due to Y2K fears, and decided to stick around. This increase in capital required an additional amount of liquidity to accomodate it. If the Fed hadn't accomodated it, the dollar would have been even stronger that it was.
Fundamentally there is just no where for large quantities of capital to go except the US (and generating a decent return, that is). The only other markets are Japan and Europe, but Japan took itself out of the running by broaching this "weak yen" policy over the past couple of days.
So now the only game in town left is the US and Europe. So global investors and Central Bankers have to ask themselves which economy is more able to sustain global growth and keep the entire planet from falling into recession/depression.
Well, the US has been "played" during 2000, and now many folks are believing the time is right for some kind of major boom in Europe. But I would submit that Europe, in it's current state, is not capable of being the global engine of growth. Tax rates and wages are too high, and the political policy makers still overly interventionist and unfriendly to entrepreneurialship.
So what that suggests to me is that inflows into US markets, while shaky over the short-term, will remain strong, if only in the US bond markets.
As for the US already being in Recession, it's probably a good chance we're on the verge of one due to the overly aggressive stance of the Fed. Boom/Bush cycles are driven by consumer psychology, as we all know. If people think we're in a boom, they invest and spend accordingly. Consequently, if they perceive the good times are over and it's time to "pay the piper", they clam up, stop spending and hunker down until someone tells that it's alright to feel confident again.
AG has spent the past 1 1/2 years trying to disrupt consumer confidence and decrease the euphoria created by the "wealth effect". 6 interest rate hikes and 9 months later, he has succeeded in spades, far exceeding even his prediction.
He stretched and strained market enthusiasm to the point that it has suddenly snapped, and now he is faced with restoring a lesser version of what he has destroyed.
Bottom line, despite the fact that the US will be under pressure, its economy is the only one capable of providing the necessary impetus to prevent a global downturn. If we go, so does everyone else because we constitute fully 1/3 of global GDP at the moment.
So the simple logic is that there is nowhere else as secure and safe as the US markets. And certainly none as transparent and relatively stable as ours, providing a safe harbor in the storm, even if only in the bond markets.
If you think US consumer psychology is damaged, wait until Europeans starts getting nervous. But all we can do is ride the storm out and wait for AG to restore the confidence he as stripped away.
Regards,
Ron |
