Morgy,
I read all of the points contained within your post. I appreciate your honoring me with your questions (and I really mean that).
However, I think you know what you are asking or saying are all equally valid and germane variables.
The only thing I can add is that one of my professors in Macro-economics, used to emphasize how anything to excess is dangerous for an economy and would have negative repercussions to some sector or another.
Take the trade deficit for example. Within reason a trade deficit can have the result of placing more US Dollars in foreign coffers, thus increasing their dependency on your currency as well as enticing them to buy your goods. But in excess, the trade deficit begins to undercut your economy and cost large amounts of people their jobs.
In a deflationary spiral the real threat is that demand is reduced, but supplies are increased. It may sound like supply side economics, but it is a bit different as the reason that demand is reduced due to financial and monetary constraints. But in order to continue to maintain the same revenues, countries are forced to produce even more product which depresses prices even more.
I would think that the only thing that would resolve a deflationary spiral is a strong financial system willing and able to extend credit to customers in order to increase demand. However, countries are being forced to defend their currencies internationally through higher rates, which proclude applying liquidity.
The Federal Reserve AND the ECB will admit to one thing that is their primary goal. That is relative price stability. That elusive target is what seems to primarily guide their policies (or so they claim). That is why interest rates will have to come down even further this year, weakening all currencies relative to other investments for rate of return.
I really appreciate the great questions and comments. There was a time when I was a budding analyst being mentored, by a number of very broadminded intellectuals. It's nice to exercise the old noggin again as we debate many of the same points that surrounded much of my "coffee shop" talk in College..... <VBG>
Regards,
Ron |
