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To: patron_anejo_por_favor who wrote (136117)	11/28/2001 8:09:06 PM
From: Oblomov	Respond to of 436258

>>If a catalyst appears (ie, major derivative fiasco), Heinz's scenario could take hold. >>In that case a dollar crash would occur, taking it down to 100 or so in no time and boosting >>inflation to double digits Patron, I agree with your conclusion regarding the likelihood of a "double dip" recession with CPI inflation on the second dip. But, I would say that a derivative fiasco is not likely to result in a dollar crash. Further, what happened in 1998 (USD decline) was largely due to the yen carry trade operation of LTCM and others unwinding- it was not repatriation of assets per se. The effect of repatriation of assets on inflation is overstated, anyway. As you appear to indicate, repatriation of assets in the short-run has little effect on inflation, but long-run repatriation has the result of lower fixed investment. And so productivity declines and we have a stimulus for inflation. But, this is the sort of process that takes years to develop, and it requires an inflationary consumer psychology as a backdrop (in which the consumer qua wageearner begins demanding more money output for less work input). A dollar decline to 100 would not IMO boost inflation to double digits. Instead, incipient double-digit inflation would be the cause of a dollar decline to 100. Few analysts want to admit that the behavior of our disintermediated economy and our abstracted markets rests on a few very simple, concrete elements of human psychology: to flee or fight? to reproduce or retrench? to demand money or goods? The behavior of markets is hardly rational - this includes the most liquid of markets, the currency market. I think that the challenge for the USD will come in late 2002... the CBs will begin to relax their stabilty measures put in place to assure a smooth transition to the Euro in Europe, and an slow, inflationary economic recovery (possibly with negative GDP growth at first) is likely then, too. BWDIK??