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Politics : Stockman Scott's Political Debate Porch -- Ignore unavailable to you. Want to Upgrade?

To: SOROS who wrote (1106)	7/1/2002 9:58:03 PM
From: Jim Willie CB	Read Replies (4) \| Respond to of 89467

CNBC's Insana interviewed three guys on dollar currency effect Insana did an excellent job, altho it was the typical brief format he provided a preface that was very comprehensive, but not detailed then he rotated among the three with their comments then the three fielded Insana's questions here is what they said, which offers indications of major perceptions (my comments in parentheses, with my own Names given) Insana in preface: on Friday the US Federal Reserve intervened at Japan's request we worked in tandem, buying dollars and selling yen (no mention of Europe joining, but I read they also participated) US suffers from twin deficits -- federal debts, current acct deficit (current acct deficit is net trade imports minus financial exports) US must continue to borrow money to finance our dollar-based debts we are grateful as foreigners finance our Treasury debt, buy our stocks foreigners purchase an array of services, plus bonds, debts, stocks US current account deficit is approaching 5% of our GDP we have so far seen foreigners recirculate the current acct debt they have been buying stocks & bonds, balancing with the current acct deficit but lately, they have been earning lower returns on all securities we could see a VICIOUS CYCLE if foreigners fear further $-based losses US current account deficit requires continued financing by foreigners if stocks & bonds decline more, the Fed might have to raise interest rates we must succeed in attracting necessary foreign capital in order to continue Naive guy: he doesnt expect ANY 200 bpt interest rate hike from the Fed lower dollar is exactly what the US economy needs, fixing our problems we will see the USdollar stabilize as the stock market turns up he was as cocky as he was naive guy with Lisp: we could see a VICIOUS CYCLE emerge as we proceed in the dollar correction he sees little alternative to the US financial markets, our stocks & bonds because economic growth elsewhere now worse, and prospects worse but if US economy fails to grow, the dollar will continue to decline we will see the USdollar continue to decline if the stock market worsens the US is looking financially like a Third World Nation now a lower dollar cures our growth problem on the current account only it does not address our federal deficit problems JPMorgan currency guy: we could see a VICIOUS CYCLE emerge as we proceed in the dollar correction he said the USdollar has declined less than 10% (XXX wrong, 120 to 106 now) (an interesting deception by the biggest gold short participant) US exporters are the big winners with a lower dollar foreigners are now buying fewer US assets now, but still buying global stocks markets are all down now, so US must only outperform them (Insana laughed, asking if US$ benefits when USstocks only drop less) foreigners are very likely to take and keep money close to home US will continue to need huge foreign capital to finance current acct deficit even with lower dollar, trade gap will continue to be quite big expects continued dollar decline, since money will continue to head home his target for end 2002: euro up to $1.04, and dollar down to 115 yen (now euro = $0.99 and dollar = 119 yen) not convinced exporters benefit much if world economy slows further a recent Federal Reserve report agrees on this reduced benefit point my final comments: no mention by anybody of the main recognized effects of lower dollar namely, slower growth from higher interest rates, higher prices no mention of the accelerator to the VICIOUS CYCLE, i.e. price inflation but they didnt have much time to explore each point in depth the Naive guy was actually funny to watch he looked arrogant, implicitly dismissing any possibility of continued $decline the Lisp guy was solid, but didnt speak as much as JPMorgan the Morgan guy was very solid, looking very confident about knowing $decline he clearly knew the many dollar angles and forces here is a pernicious thought in order for JPMorgan to suppress gold, they short gold and go long bonds they keep interest rates artificially low, to make gold artificially low the Federal Reserve research has mentioned this dual control JPM might be involved in the dollar carry trade I have read spotty reports that the dollar carry is increasing i.e. sell dollars and offset with buying gold or euros (or 1/2 each) this could unwind their own gold carry trade practiced during entire 1990's (which was selling gold and buying USTBonds, the suppression game) so JPM might actually get out of their massive pickle by means of the very lucrative dollar carry trade the Federal Reserve is under SEVERE PRESSURE now to raise interest rates JPM would be aiding the $decline, thus pressuring the Fed even more to raise rates the Fed almost desperately needs to raise rates now since it must close the interest rate gap with the Eurobonds if JPM is engaging in the dollar carry trade, that would essentially represent revenge toward the Fed for using JPM for years as a tool that has runs the risk of gutting and bankrupting their company one thing is for sure JPMorgan could participate in the dollar carry trade and stick it to the Fed the temptation is massive, since the trade is so lucrative such carry trade is ENORMOUSLY profitable, esp with futures contract leverage right now the carry trade is so so so easy this USdollar is not gonna rest, pressures from every side its overvaluation is staggering the potential for a VICIOUS CYCLE is very high in my humble opinion my reasoning is simple our foreign supplies dependence has grown every year for almost 20 years moving production offshore has been very profitable finished goods and components are in everything the US produces and assembles I would love to see figures on percentages here, anybody? the US economy has much service business, not as much production with NAFTA, Mexico now has both production and assembly Mexico is like our 51st state, providing domestic production the service sectors have already seen small to medium sized price inflation now the production side will see price inflation, from foreign price rises so gradually we will have price inflation return to the US China may have a contributing factor here they could assist in keeping US import prices down China would have to allow profit margins to disappear, from lower dollar lastly, I expect a VERY NASTY EFFECT to occur I dont think a lower dollar will reduce US account deficit a lower dollar will hurt foreign exporting economies principally Asia but also with a weaker US economy, foreign economies lose their customers I expect the foreign account deficit to remain largely intact AND the US federal debt to increase I expect the dollar decline to get out of control constant trade account deficit growing federal debt accelerating dollar decline / jim