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Strategies & Market Trends : Booms, Busts, and Recoveries -- Ignore unavailable to you. Want to Upgrade?

To: Crimson Ghost who wrote (12224)	12/28/2001 5:32:48 PM
From: elmatador	Respond to of 74559

<<The economy will more likely than not begin to recover by the second half of 2002>> Wait a moment! But the interest cuts starting January 2001 were supposed to restart growth in the second half of the current year? <<contained depression>>? But the interest rates' cuts were not supposed to provide a soft landing? I'm seeing De la Rua macro economic policies in the US!

To: Crimson Ghost who wrote (12224)	12/28/2001 7:27:56 PM
From: TobagoJack	Read Replies (4) \| Respond to of 74559

Hi George, I keep up with the Levy folks and find them generally to be balanced, awake, and not dramatic. All these are good characteristics for an economic forecasting outfit. On the latest Mount Kisco crystal-balling, they may be right, but I have some logic difficulties with it. It is not that I think they are wrong (which of course they may be) but that I think finance could easily work out another way this time around. I especially agree with the following bits … <<both the remainder of the recession and sluggish recovery will prove more worrisome than widely expected>> <<full-year operating earning will do well to top 2001’s by as much as 5% and may fail to rise at all>> <<Domestic financial problems and global instability will plague the U.S. economy in 2002>> <<the economy has gone so far down an unsustainable long-term path that a major adjustment must occur in one form or another before too long. This means that it is dangerous to take for granted that well-established cyclical patterns will hold. These times call for constant skepticism, reevaluation, and flexibility in financial dealings>> <<As a result of the 1990s financial bubble, the U.S. private debt burden is now so large that it requires low interest rates and booming cash flow to prevent widespread problems servicing the debt. However, the steep decline in the federal funds rate is running out of room to continue and booming cash flow is not likely any time soon>> … and here is their conclusion … <<According to the Levy Forecasting Center, the economy will most likely go through a prolonged period of adjustment, or a contained depression, involving falling asset values, debt shrinkage, and depressed net investment>> … because <<with unemployment rising into the second half, global deflationary pressures, mounting financial problems, no inflation to speak of, and at best a sluggish recovery, the Fed will not raise rates for many months. Under these circumstances, the Forecasting Center believes that a 4% yield on the long bond in 2002 is likely>> … that I have logic difficulty with. US, at the big fat margin, is financed by foreigners from all over and aliens from Japan. With the US going into ‘contained depression’, the foreigners ought to go into apoplectic death dance, because if the USD remain high or go higher, oil cost goes up for the foreigners, even as their best market stops buying due to satiation or lack of further debt capacity, and even worse, starts paying ever lower interest rate on its debt to foreigners. If so, the foreigners will stop funding the US deficit, in which case the USD will then go low. When and if the USD goes low, due to the now dead foreigners (again at the margin) not having the revenue to continue funding the US deficit, or worse, the dying foreigners withdrawing capital for necessities at home, then the US will go into shock therapy in asset values (down hard), real interest rate (rise sharply), and unemployment (break records due to new-age human capital rich service economy structure), even as the foreigners are not buying US goods due to depression at home and due to fact that the US goods are mostly only suitable to the US market, and US doesn’t produce much of it anyway. The logic of the current scene is that we have a global synchronized hard recession / soft depression happening at a time when the US is not the largest creditor but the awesomely huge debtor, while the largest creditor is going bankrupt. If so, we are then in a realm beyond the forecasting abilities of Mount Kisco based economists. This time it really may be different, and besides, there is no such thing as a contained depression. The Levy folks are trying to be not alarmist. Chugs, Jay