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Politics : Ask Michael Burke

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To: accountclosed who wrote (51748)	3/13/1999 10:09:00 AM
From: Oblomov	Read Replies (5) of 132070

Question for this thread: Why is everyone here so certain that a BK will be precipitated by the re-emergence of inflation? Higher short-term interest rates (which are the underlying conditions of a BK - we lack the catalyst) can be caused by the liquidation of money market and savings accounts by individuals, and the liquidation of bonds and cash by the institutions, to buy stocks. Japanese liquidation of U.S. Treasuries can also result in higher rates. In neither case is concern about inflation the primary issue. It is just that the usual players want to put their money elsewhere. Look at DELL and ORCL: They were bludgeoned because they missed their revenue expectations. The tech companies, which were one of the drivers of disinflation, are now finding themselves victims of deflation. Commodities producers have been feeling the pressure of deflation for some time now. This appears to be good for the economy, in the short run. However, as it proceeds through the supply chain, demand begins to lessen in the expectation of falling prices. The economist Daniel McFadden claims that demographics and overcapacity among builders will conspire to deflate housing prices by about 1% per year through the first half of the 21st century. One of the few inflationary aspects of the economy is rising stock market prices. If a bear market set in, and Americans were forced to return to being savers (rather than investor-gamblers), then deflation would be assured. AA

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