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

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To: russwinter who wrote (3175)	12/11/2003 8:31:37 AM
From: Wyätt Gwyön	Read Replies (3) of 110194

the bogus and false inflation rate (minus everything that's inflating) is only 2% i think the problem is that there's a lot of inflation in the inputs, but no pricing power in the outputs. the result of higher input prices without higher output prices (indeed, deflation in many output prices, as per WMT SKUs) is a decline in margins and profitability. the result of a decline in margins and profitability is weak hiring demand. the result of weak hiring demand is poor income growth. the result of poor income growth is a weak consumer, which as we know has been the overwhelming driver of the so-called recovery. the only thing that has allowed the consumer to continue driving the economy in spite of poor income growth is the housing bubble. and as we know, the housing bubble is utterly dependent on low interest rates at this time. a rise in interest rates will kill the housing bubble... which will kill the consumer... which will kill the economy. so i would submit that in this dilemma, where the Fed must negotiate a path between the Scylla of a weakening USD with attendant commodity inflation, and the Charybdis of a depression brought about by a rate hike-induced housing crash, the Fed will choose the "lesser of two evils". i.e., continued LOW interest rates... this line of thinking leads me to expect continued fear and loathing unto death for the USD.

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