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To: Zeev Hed who wrote (2658)	12/23/2000 4:48:00 PM
From: Henry Volquardsen	Read Replies (2) \| Respond to of 3536

Zeev, we definitely are in agreement on Asia as a leading sore spot. I have been very nervous about Japan in particular and Asia in general for awhile now. I've seen nothing in recent Japanese developments that I would consider encouraging. I suspect they will be a concern of the global economy for quite a while into the future. I didn't mention the trade deficiet because I appear to be pretty radical in my thinking on the subject. In other words a lot of people think I'm nuts :) In short I'm not the least bit concerned about the trade deficit. To me it is a result of economic conditions not a causitive element. The trade deficit could not exist if there was not an equal and entirely offsetting net demand by foreigners for investment in the US. As long as capital flows are unencumbered and foreign exchange free floating the markets will respond very efficiently between these forces. And the ability to make frequent small adjustments will forestall a big adjustment. I've thought about this subject a lot and am just not that worried. The empirical evidence seems to support my thesis. Over the thirty years I've followed the markets the US has had large and growing trade deficits that have been the subject of much hand wringing. The only times, however, that it has been a problem is when the US has been structurally unattractive and coming out of a period of more rigid capital flows. So as long as we keep capital markets free and focus on make our internal markets structurally efficient then the trade deficit will be a result not a cause. Btw I won't be insulted if you think I'm nuts. Henry

To: Zeev Hed who wrote (2658)	12/24/2000 6:22:47 PM
From: Hawkmoon	Read Replies (3) \| Respond to of 3536

If AG relax monetary policy too soon, these are going to balloon past the $40 Billion monthly Hey Zeev, maybe I can get a straight answer out of you, since no one else wants to discuss the trade deficit in any depth (except to say it's a negative). My question is based upon the fact that, after WWII, the US GDP made up some 50% of the global GDP. That means that we were running a tremendous trade deficit as the broken nations of Europe and Asia looked to US markets to sell whatever products they could produce. So considering that the rest of the global economy is faltering, and has been depending on a robust US market to subsidize their own lackluster economic growth, I have a hard time figuring out why they would suddenly want to withdraw their assets and move them from a place of relative safety and transparency, to other markets that offer less security. I mean, this is the fear that everyone is espousing, right? These nations have been selling us Billions in goods, receiving dollars in payment, and then socking them back into US T-bills and other assets because our markets offered both more financial rewards, BUT ALSO the safety and security found here (no one itching to invade us, for one) I mean, I could see the problem of a trade deficit were there in existence some alternative storehouse of wealth for that cash. Gold could be an alternative, but it would require sustain economic weakness in the US, with an eventual requirement to induce inflation, to cause gold to climb to previous high levels of the '80s. And with a recession, the US will see price deflation as "beggar thy neighbor" economics come to the forefront, maybe even launching outcries for protectionism. So while I see the trade deficit as an issue, it is not out of line with what we've seen in the past, and it is primarily an issue of competing nations not being in any condition to buy US goods to the level we're buying theirs. Bottom line, imo, they need our markets more than we need their goods. We can make their goods, but they to lack the ability to spur domestic growth. I would think they realize this more than we do. In fact, the WSJ reports that Japan is heading back into recession, and that China's "official" growth rate is slowing (we know they are heavily inflated stats over there, right?) And it would seem that Europe will eventually suffer from a US slowdown as well. So why would foreign investors see weakness in the US economy as reason for transferring their money back home to economies that could suffer worse than the US? I would appreciate your opinion and hope you can expand on the theme. Regards, Ron