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Strategies & Market Trends : Currencies and the Global Capital Markets -- Ignore unavailable to you. Want to Upgrade?

To: Henry Volquardsen who wrote (2661)	12/23/2000 5:24:28 PM
From: Zeev Hed	Read Replies (1) \| Respond to of 3536

Henry, I agree with your not being concerned, yet, but there is a point where the quantitative nature of the deficit turns into a qualitative shift of its nature, from being a result, it will become a cause. I don't mind when this deficit is covered by foreigners coming in and buying our markets (financials and real estate) at their tops and selling these back to us at bottoms (The Japanese were great at doing that in the 80' and then sold everything back to us in the 90' at half prices, look at the Rockfeller center for one <g>). However, we can't rely on foreigners to always buy our peaks and sell them back to us at throughs. When the trade deficit will go above a given percentage of our own GDP (and I am not sure what the breaking point is), imbalances will appear, and any signs of weakening of the dollar, could cause massive outflows out of these assets. The way I see this, it is a ticking bomb, a short term loss of confidence in our leadership (and with Bush/Chenney warning incessantly of a recession, what should the rest of the world do, when our own leadership loses confidence in the US economy?) could precipitate an avalanche and a financial crisis. Lowering our rates, then, will only weaken the dollar further, going into a tail spin and finally reaching a new "balance point". The havoc created in the meanwhile, will be painful. At close to half a trillion annually, or around 5% or so of our GDP, I think that the breaking point may not be far. I also think that rightly or wrongly, this figure is going to be more and more of concern to the feds. You must remember that we got here, because AG decided that to :"save" the world economy from a collapse in late 98, he decided to make the US the "demand of last resort", to Asian economies that have overbuilt their capacity. Well, that overcapacity is still there (look at Daewoo, for instance), but are we ready to serve once more as "demand of last resort" for the world?, if our monthly deficit was just $20 B as it was in 98, sure, but at $40 B? Thus, if the next Asian crisis, will not be resolved by the US importing their excess capacity of products, then how will it be resolved? That is why, IMHO, the trade deficit is moving from a result (of our prosperity) to a cause (of inability to stem a world wide recession). Zeev

To: Henry Volquardsen who wrote (2661)	12/25/2000 1:03:22 AM
From: Andrew G.	Read Replies (1) \| Respond to of 3536

Henry: Regarding demand by foreigners for US investments. A UCLA study points to Europeans getting a hard licking. : contracostatimes.com Published Tuesday, December 12, 2000 UCLA model predicts U.S. recession in 2001 Relevant excerpt: " Edward Leamer, director of the UCLA forecast, described a more severe scenario for a national economic slowdown. He noted that much of the runup in stocks had been driven by money from abroad, especially Europe, with annual net investment inflow exceeding $400 billion, equal to more than 4 percent of gross domestic product. Leamer cast the runup in Internet stocks, and the resulting prosperity here, as a deal in which U.S. consumers got the better of European investors. "Had we financed the Internet boom with bonds issued by viable American companies, we would be deeply in debt to Europe today, but we wisely issued them worthless equities," or shares of stock, he said. "These Europeans will never get their money back since the first attempt at wholesale cashing in will bring a double deterioration in their value." But Americans who have counted on the Internet stock boom to continue indefinitely may also suffer because they "have to adjust painfully to a new lifestyle that is no longer being paid for by issuing worthless paper to unsuspecting Europeans," he said. "The adjustment could require a long and deep recession, like Mexico in 1995." Leamer warned that there are clouds all around the economic horizon. "It's hard to see any basis for optimism about the global economy overall for the next year," he said. Leamer said that the national economy "can expect a slowdown (with) slight negative growth of (gross domestic product) in the second and third quarters of 2001" and said that even early action by the Federal Reserve to lower interest rates wouldn't be enough to avert a recession. " Also regarding the concern you and Zeev had regarding Asian markets, you might be interested in reading what Mr. Jay Chen's perception of Tawain's currency and economic situation : Message 14876711 IMO, I see the festering dispute with China about Tawain's independence coming to a head sometime in the near future. Regardless, of economic conditions, I would not be at all surprised if Tawain's statehood becomes a bigger story next year than the Middle East was this year. One can only hope for some peaceful resolution.