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Strategies & Market Trends : The Epic American Credit and Bond Bubble Laboratory
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To: NOW who wrote (22875)12/5/2004 7:14:52 PM
From: Carlos Blanco  Read Replies (3) of 110194
 
You and Russ both suggest this one: " will finally be some kind of "real" action that will halt the dollar decline" like rising rates. How can they allow rates to rise here? do you not agree that such a move would be deflationary? with the massive debt levels in the US, how could this be allowed?

well...that might not be the response, that's just one of many. it's what volcker tried successfully last time around, but it's not likely to work this time because the problems and context are different. the "solution" this time might need to be something else such as clear public statements & commitments wrt. reducing the deficits.

or perhaps rate increases might happen only after the dollar has been devalued by so much (or there has been enough visible & unquestionable inflation due to higher imports & commodities) that very large portions of the outstanding debt have been rendered irrelevant. raising rates in such a context would be a lot less problematic that what it would today.

but, most importantly, it seems to me that china/japan are the folks who actually control long-term interest rates in the US. at some future date, those guys might not care about (or in fact favor, for geopolitical reasons or as a show of power) inflicting pain and chaos onto the US economy by letting its rates rise. check out the end portion of a fantastic article at 321gold.com. he lays out my view of the current and future interest rate situation much better than what i ever could.
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