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Politics : Welcome to Slider's Dugout
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To: c.hinton who wrote (4418)1/13/2007 7:47:48 AM
From: Fun-da-Mental#1  Read Replies (1) of 50730
 
Thanks for posting that article. This is the new reality and we need to adapt. Fixed assets are down (bonds, real estate, commodities) but productive companies are up (Nasdaq breakout).

Asking why this is happening is maybe irrelevant and just a distraction, but I can't help it. It's in my nature. In particular, how can it be that consumer prices and wages were flat for so long during the good times, but are rising now in the face of an economic slowdown?

Maybe it is because so many Chinese are getting rich. The Shanghai stock exchange was up 120% in 2006! So the pool of cheap labor is drying up. And OPEC is getting super rich. High oil prices are another cause of inflation. We need to raise the value of our currency to make sure we can still afford to import oil and consumer goods. Hence the interest rate hike.

But maybe it's more than that. Maybe the real concern is capital flight. With emerging markets growing the way they are, why would investors want to stay here? Why would multinational companies want to locate here? The worst-case scenario is a vicious circle of capital flight and currency devaluation, out of rich countries into emerging markets, like 1998 in reverse. Maybe that is why we need to boost our currency at all costs, even if it means a recession. Maybe a recession under those circumstances would not be so bad, because emerging markets would probably be hit the hardest, and that would reverse the flow of capital back to the safe haven here. And maybe that's why our markets are rising despite the slowdown? Is this what Slider means by "trillions trump billions"?

Somebody tell me if I'm making any sense here.

Fun-da-Mental
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