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Pastimes : Clown-Free Zone... sorry, no clowns allowed

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To: ild who wrote (207283)	11/29/2002 7:56:40 PM
From: ild	Read Replies (1) of 436258

Is There A Cure? Question-- Dear Sirs: How about a commentary on what you would like to see done in the private and governmental areas to cure the economy and stimulate prosperity? Answer: We wish it were that easy. The damage done during the financial mania has left many structural imbalances that only time and a continuing bear market can correct. We would advise being as easy as possible with monetary policy, and the Fed is now becoming very aggressive. Some fiscal stimulus from the federal budget is necessary as well. The record debt accompanied by tremendous worldwide overcapacity and an overvalued stock market will take time to correct. The current account deficit and low savings rate also have to be resolved, and the resolution is not easy. All of this is accompanied by over ownership of stocks by the public as well as foreigners. This is not as easy as waving a magic wand. Individuals and corporations with too much debt will have to eventually work their way out or go bankrupt. The overvalued stock market and over ownership of stocks will also take time to wind down unless we have a crash, and the current account deficit and low savings rate will not be easy to resolve. In fact, the resolution will probably be very painful. The policies we would advocate also entail a great deal of risk. As we now know, near-zero short-term rates in Japan together with substantial fiscal deficits kept the economy from collapsing, but did not help it recover. The Fed believes that aggressive ease can work, but the economy is an expensive place to tinker with new experiments. Easy money and fiscal deficits add to total debt, and excessive debt helped get us into trouble in the first place. In addition, running the printing press on new money may prevent deflation only by causing inflation. We lean toward the deflation case, but in either outcome, we think that stocks are headed far lower. comstockfunds.com

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