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

To: Zeev Hed who wrote (2663)	12/24/2000 11:12:09 AM
From: Henry Volquardsen	Read Replies (1) \| Respond to of 3536

Zeev, You make some good points. My differences are not whether there are potential problems but more on the order of what is the horse and what is the cart. I strongly agree with your last paragraph. A large contributer to the current dilemma is the decision to help bail out the world in 98. It was clear then that providing monetary stimulus to an already strong US economy was a dangerous remedy. That is also why I said earlier that it is clear the Greenspan Fed is looking beyond domestic considerations and why they move lower with unemployment as low as it is. And that massive Asian overcapacity that caused the 98 crisis has roots going back decades. It is a boring topic but an investigation of Asian accounting practices, particularly pension accounting, helps make a strong argument that the Asian economies did fuel their export growth via dumping. And it will take a long time to unwind these structural problems. You say "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." As long as capital flows remain free I'm not as concerned. This is probably a very technical point on my part and is not speaking to the underlying forces. But that shift in the cause effect dynamic does not happen over night. Therefore to the degree that such a shift is a process the markets will adjust efficiently. That is not to say that eventually the dollar will weaken dramatically because of this overhang but that when it does it will happen in a fashion that the market will be able to adjust in a reasonable fashion. So my lack of concern is not that I believe there will never be a reckoning but my belief that in a free floating exchange environment it will happen over an extended period and the economy will be able to adjust. This will be unlike the monetary crisises precipitated by large trade imbalances under more rigid currency regimes. You make an interesting comment about Bush/Cheney damaging confidence by talking up recession. That and the extended election dispute has been a major factor, imo, in creating a general feeling of blahs that has contributed to the fall in confidence. And from the 'talk counts files' I have long felt one of the major underdiscussed factors that led into the 87 crash was James Baker's talking up a trade war with the Japanese. Henry