Robert,
My three potential scenarios are as follows (in brief):
1) Tight labor markets boost inflation. The Fed raises rates vigorously. The US enters a recession. US consumer's belts tighten and this increases demand for Asian goods and makes worse the situation in the US. Subsets of US workers in new growth markets do well. Inflation hits Asia. US import inflation. The dollar falls and adds to inflation. The difficult time lasts for awhile. Probability 15%
2) Profit squeeze and competitive squeeze puts a lid on wage and employment pressures. US companies take productivity increasing measures to compete with the increased flow of foreign goods (read layoffs). Inflation hits Asia. Asia simmers in its own soup, but does not significantly worsen or improve. Fluctuations in both directions do occur. US import inflation. The Fed deals with this inevitability in a restrained manner. Growth slows, perhaps even dips negative for a quarter, but a recession is avoided until late 2000 to sometime in 2001. Probability 30%
3) Japan and China crack and the backlash hits Europe and US. The world loses confidence. The dollar does well. Small subsets of US workers in new growth markets continue on well. Competitive devaluation's of currency hurt most other markets and leads to calls for protectionism. Probability 15%
I guess most likely (the remaining 40%) is some combo. I do feel pretty strongly that the lid on the labor situation is cracked and letting off steam. Despite the boom in Boston I already notice declining demands from new hires. I feel strongly that the US will import inflation from Asia, and this will be followed by currency induced inflation when the dollar weakens. The Fed must be restrained in a fight against this fire. Japan and China remain wild cards to me. I'm less convinced China will devalue than 30 days ago, and more convinced Japan is imploding. These two are in conflict.
Keep up the good work thread, I'll be at sea the next two weeks. A welcomed break from the PC, the office, and the wonderful shrinking globe.
Cheers,
Lee |
