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Gold/Mining/Energy : Gold Price Monitor -- Ignore unavailable to you. Want to Upgrade?

To: Zardoz who wrote (67522)	4/11/2001 9:10:27 AM
From: Rarebird	Read Replies (4) \| Respond to of 116960

<As you mentioned Euro did squat on rates, which in my opinion was predictable {more so then US fed actions} Denial is always at forefront in ignorance.> So, Hutch is a clear proponent of modern interest rate theory. This modern theory holds that the best way to shore up and strengthen your currency is to cut your interest rates. The rationale for this is that a nation which cuts interest rates is demonstrating its determination to get economic "growth" moving forward at a faster pace. Do you remember, in this context, that a little over 20 years ago, the U.S. saved its currency and the reserve status that the Dollar enjoyed by massively RAISING interest rates. Today, the way to strengthen a currency is held to be to CUT rates, and if that doesn't work, to CUT them some more. At least that is the "theory" coming out of North America, Asia, and the Dollar bloc nations in Oceania. It is NOT a theory held by the EU. To be sure, right now, one reason why the rest of the world is buying U.S. Dollars is BECAUSE the Fed is cutting rates. The other main reason, as I stated previously, is that plummeting U.S. markets represent a global margin call and overseas investors holding leveraged U.S. investments are having to put up more money (U.S. Dollars) to maintain these investments. Even Japan (where the fact that lower rates can't save an economy overwhelmed with debt is well known) is relying on lower rates to save the U.S. and therefore the world economy. In fact, the entire world - with the notable exception of continental (European Union) Europe, has bought the lower rates = stronger currency gambit. Boiled down to its essence, here is what most of the world is thinking: Our local markets are terrible. Our debt levels are unmanageable. Our economic prospects are dire. If we are going to save something from the wreckage, we'd better get into the U.S. and the Dollar fast. Sure, U.S. markets aren't looking too good and neither is the U.S. economy. But they will recover. They always do. Besides, if the U.S. does NOT recover, there's no hope that anyone will, so we don't really have any choice but to park whatever we have left in the U.S. anyway. Consider the REAL state of the U.S. economy and the U.S. financial system today: U.S. Broad money (M3) has been rising dramatically over the past couple of weeks and has been increasing at 14% (annualised) over the first three months of 2001. During the first quarter of 2001, $US 223 in new debt paper came to market. $US 198 Billion of (investment grade) corporate bonds came to market, almost double the $US 102 Billion of the last quarter of 2000. In March, $US 11.5 Billion in home mortgage securitisations took place. The February figure was $US 2 Billion. And while all this is happening, U.S. corporate credit quality fell for the twelfth straight quarter (3 entire years), a record unmatched in a decade. This is happening in a nation whose people have no savings and have sustained almost 60% of the $US 10 TRILLION in losses which the world's stock markets have suffered over the past year. This is happening in a nation where nothing is booming except dwindling pockets of real estate - and the international exchange value of the U.S. Dollar. Sure, a nation which controls the world's reserve currency has HUGE international advantages - so long as its currency REMAINS the world's reserve. The financial authorities in the reserve currency nation are the world's economic tooth fairies. Put your poor and huddled currency under Mr Greenspan's pillow and it will turn into REAL money! But for any reserve currency nation, when the aura wears off, the consequences are dire. Evidently alone amongst his global equivalents, the ECB knows this. This is clear from the actions of the ECB in recent months in NOT lowering European rates. By not lowering rates, the ECB has (so far) ignored this global about face in the attitude towards the relationship between interest rates and currencies. How Long Can This Last?: The Clock is winding down. PS It's still a Bear Market in equities.