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

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To: Mike Johnston who wrote (69971)	9/19/2006 9:55:57 PM
From: John McCarthy	Read Replies (2) of 110194

Hi Mike - I am not being argumentative and your summary is excellent ..... in noodling on this part - it is hard (for me) to fathom .... Maintain 10% + inflation for the next few years to limit nominal declines in housing prices and to try to increase wages. PLUS Lowering long term rates below 4%, most likely to 3.5% to allow many adjustable mortgages to be refinanced at low fixed rates my dumb ass 2 cents says .... (a) the Fed cannot directly manipulate long term rates (and I could be wrong) (b) if announced inflation rates were allowed to rise anywhere near 10% it would instantly give us problem(s) with: - selling treasury notes to foreigners i.e. they would req. higher rates ... - further kill off the dollar because e.g. if your China do you really want to hold $300 billion to $400 billion of USA dollar debt while USA inflation going north? - force foreign holders of the dollar to (perhaps) move out of them quickly - further hurting the dollar ... - in the end there would be less people to peddle our debt to - and right now we are bond addicts ... please - no flames ..... Mike's analysis is the closest I've seen to the complete picture of just what the hell is going on .... i.e. dollar, commodities, etc. the point about driving rates down so that home buyers can re-finance (to me) is the perfect way to attempt to get out of this housing time-bomb .... in the end - I guess my question is: why not (from the fed's point of view) allow a hit to housing prices .... to within some range .... regards, John McCarthy

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