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

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To: mishedlo who wrote (22680)	12/1/2004 7:13:41 AM
From: russwinter	Read Replies (1) of 110194

<recession which would then send interest rates back down below 1%.> Won't be the Fed's call. From the Shostak essay: The only reason why the economy continues to march ahead is on account of the positive flow of funding from the rest of the world. Thus in Q1 the balance on the US current account was in deficit by $145 billion against a deficit of $127 billion in the previous quarter. As a percentage of nominal GDP the current account deficit stood at 5.1% in Q1 against 4.5% in Q4. Although the present emerging tighter stance is likely to produce pain, there is currently no other alternative that can prevent the decimation of economy's real foundations brought about by extremely loose monetary policy. However, we suggest that one shouldn't exclude the possibility that if the economy were to plunge on account of the emerging tighter interest rate stance that the Fed may make a quick reversal of its stance. Whether this possible reversal would arrest the plunge will be determined by the availability of real savings from the rest of the world.

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