<<what about the massive current account deficit and weaker dollar>>
none of these things exist in a vaccuum. the lower rates (as i see it) are brought on not by a weak economy per se but by a contraction of credit. this is clearly already happening in the corporate world, and is slowly happening in the consumer world (i.e. NextBank closing, Metris in trouble, Capital One having to put up more reserves).
now, with a contraction in credit, especially on the mortgage / refi side, the profligate baby boomers will no longer be able to afford/finance that fancy new Sony digital TV or their every-three-year Lexus trade-in. so there goes the current account deficit; when demand collapses in the US due to credit contraction we won't buy nearly as much stuff from abroad. now, the problem with the rest of the world is that they as a whole, especially Asia/Japan, have not developed sufficient domestic demand for their goods and are thus dependent upon the profligate American baby boomer to keep their economies going. so their economies will suffer, and their currencies will be no more competitive. as for Europe, IMO there are structural issues, mostly tied to latent socialism, that hurt their currency and this will only pick up pace as the global economy stalls -- i.e. expect a considerable incremental move to the political left by most of continental Europe over the next 5 years. so basically the dollar won't fall (maybe i should say 'won't collapse' as i think it will fall another 10-20% over the next couple of years) 'cause it will still be the best of a lot of crappy alternatives.
this is also the course of my argument for why an investment in gold will work even in a worldwide DEflation. gold is IMO not a bet on inflation or deflation, but a bet on the REAL returns of alternative assets (stocks, bonds, currency, real estate). as i expect the real returns of alternative assets to pretty much suck, due to the deflation, gold should be a star performer.
all IMHO of course.
Cheers |
