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To: BigBull who wrote (24668)	10/4/2000 9:50:28 PM
From: pater tenebrarum	Read Replies (1) \| Respond to of 436258

well, there are unfortunately different views across Europe regarding the currency debacle, as some of the nations that are members of the Euro zone are used to competitive devaluations (for instance Italy) and all for them, while others like Germany are traditionally hard currency advocates. interestingly, official Euro zone inflation overall is still much lower than US inflation, in spite of the fact that there are barely distortions in Euro zone inflation data like the hedonic adjustments used by the US BLS. some peripheral countries like Ireland and Finland however have lately seen inflation rates accelerate sharply, and the inflation trend in the entire Euro zone is pointing up, and already above the ECB's 2% self-imposed ceiling. my re-current expenses household budget shows that 'real' inflation is likely higher than official inflation, however, money supply growth in the Euro zone, while hefty, is still only half of that in the US so by and large the ECB is pretty disciplined. i do think rates will have to be raised further, but the ECB will do so very carefully in an attempt not to endanger economic growth. if the ECB sees the need to defend the external value of the Euro vs. the dollar, it can intervene practically forever, as it has almost $300 billion in forex reserves. eventually the market would get the message. since the Euro zone has a trade surplus, there's a steady inflow of dollars, which have become the main US export article. i personally think the market has leaned too much on the Euro, and intervention would in fact make sense, as the fundamentals like purchasing power parity, economic growth rates, trade surplus and relatively tame inflation all argue for the Euro to be very much undervalued. it is also very likely that an implosion of the US credit bubble would actually lead to a flight into the Euro, as no comparable credit bubble exists in Euro land. while financial asset prices have also boomed, a collapse of the global stock market bubble would have much less economic impact in Europe as the percentage of households that hold a significant amount of their wealth in stocks is very small. effectively a significant share of the debt issued by US entities, be it the government or corporations is held by European investors. lately some selling of bonds has begun, but not yet of US equities. once that gathers speed, the Euro and the associated carry trade will go the way of the Yen in late '98.