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To: SouthFloridaGuy who wrote (80638)	3/14/2001 9:10:26 PM
From: pater tenebrarum	Read Replies (1) \| Respond to of 436258

it is a very difficult question indeed. let us first consider the effect of the rate cuts to date. what has in fact happened as a consequence? the dollar has barely suffered any ill consequences. the credit markets (i am now talking about the corporate bond markets, junk and otherwise) had a temporary blip of returning liquidity and shrinking credit spreads, all but wiped out in the meantime. still, high grade spreads are still 20 bps. off their widest point reached just before the first surprise cut. but the biggest effect has been a veritable orgy of mortgage refinancings, and a further EXPLOSION in both consumer and corporate debt. in other words, the nation got happily pushed into an even bigger debt trap. the expansion of GSE balance sheets is truly a sight to see...imo the main effect has thus been another round of classic Minsky-type Ponzi finance. the broadest gauge of money supply, MZM, is rising at an annualized rate of 24% lately - not exactly the stuff of monetary prudence you will agree. this money has gravitated towards inflation, as it always does - thus no effect on the stock market. as for the dollar, it is clear that a nearly insoluble problem (i.e. not solvable without considerable pain) exists here: on the one hand, a weaker dollar is absolutely necessary to bring the current account deficit back into line, which is on a dangerous path. on the other hand, the fact that such huge piles of dollar denominated assets are now held in foreign hands, a weakening dollar could bring about an avalanche of selling...as everybody tries to get out of the door before others do so. this puts the Fed into a bind, as a falling dollar would initially further fan the flames of budding inflationary pressures.