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Strategies & Market Trends : The Epic American Credit and Bond Bubble Laboratory

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To: el_gaviero who wrote (1609)	10/21/2003 3:39:02 PM
From: mishedlo	Read Replies (1) of 110194

dailyreckoning.com "What kind of world is it? Is it one in which a man can cure a hangover by getting drunk forget out of debt by borrowing more? Or is there a price to be paid for foolishness, collectively as well as individually? Is the world just a fine-tuned machine where a capable public servant can simply turn a screw or tighten a knob to make history turn out the way he wants? Or is it an infinitely complicated, natural thing as prone to error as a mob of teenage delinquents. "In Krugman's mechanistic world, there is no room for Ought. If the monetary grease monkeys after the Great Depression of the 1930s or in Japan of the 1990s had failed to get their machines working, it was not because any invisible hands were at work or they were ignoring nagging moral principles to be reckoned with . . . but because they had not managed to turn the right screws! "It is completely incomprehensible to the Keynesians of the world [like Krugman] that there may be no screws left to turn or that the mechanics might inevitably turn the wrong screws as they play out their roles in the morality spectacle." An easy example of an imbalance is the US trade deficit. We now buy $500 billion more goods and services from foreigners than we sell EVERY YEAR. In two years that is $1 trillion. In four years it adds up to over $2 trillion. What will those foreign holders of dollars do? They have already bought 46% of our free trading government bonds. Will they buy more? At what point do they think they have enough dollars and want something besides dollars. And mind you, this is a dollar which the Federal Reserve is bent upon inflating and the US treasury is bent on devaluing. At some point the prospect of doing business with the US may become more pain than pleasure, and the value of the dollar falls. The "Ought to" school says this trade deficit should stop, and that governments should stop manipulating the values of currencies. If this continues, it will create a significant and painful correction.. The dollar should be allowed to fall in value. But they were saying that years ago, when the deficit was half of what it is today, and the parade has yet to end. ================================ Also read the mogambo guru - hilarious today M

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