Booms, Busts, and Recoveries Message Board

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Strategies & Market Trends : Booms, Busts, and Recoveries

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To: elmatador who wrote (49778)	5/11/2004 9:38:37 AM
From: macavity	Read Replies (2) of 74559

Raising interest rates to generate growth may sound counter-intuitive but this can be the case with fiat currencies. The raising of interest rates does not always generate recessions anymore than lowering them creates booms/growths (c.f. Japan). The reason is that these rates are not market-determined. The Fed's purpose is to generate growth; keep the US on top. There is very little in Mr G's speech that contradicts his 1966 papers. This is because his speeches are meaningless - and can be interpreted in multiple ways. The problem now - as Mr G and Mr B know - is debt. If the debtors (primarily the US Consumer) cannot service their payments and asset prices fall then the whole game is up. Bonds/Currencies/Gold/Commodities/Shares have all been hhit, and the USD has rallied over the past 1-2 mths. This 'implies' a move-to-cash or a cash call against assets - a 'deleveraging'. If this move to cash persists then by definition what we have is Japan89. The only bullets left for Greenspan is to monetize the long end of the curve and start buying long-term bonds (or even foreign bonds) as short rates are now at 1%. We could well get a FX/Gold/Commodities/Bond/Stock rally from here but watch out if these rallies fail (esp. FX/Gold/Commodities/Stock) as then we enter a world of hurt. Soon the Fed may have a very simple choice for the US economy: Inflate and go the way of the Weimar Republic, or allow deflation to take hold and enter the Japan89/USA29. -macavity

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