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To: TobagoJack who wrote (184010)	7/27/2002 4:50:55 PM
From: XBrit	Read Replies (2) \| Respond to of 436258

Thank you Jay. Your arguments make a lot more sense than The Morgan Stanley guy did. I read his piece very late last night and I needed some help fitting it into my thinking. I've been wrestling this week with the whole deflation scenario, which DAK was referring to above. I just can't see it makes sense. In the early 1930's we didn't have this Fanny/Freddie ultra-efficient mechanism for translating lower LT interest rates into housing asset inflation. Back then, only maybe 35% of families owned their house, and mortgages were more like car loans... maximum 5 years, not deductible, and most people tried to avoid them. But nowadays, interest rate deflation feeds right back into consumer reflation via the Real Estate bubble. Therefore I just don't see how it can work as a mechanism for a bad recession. So I agree with you, a more likely scenario is stagnation turning into recession, and rising unemployment, with low but positive inflation. And the whole scenario pushed over the tipping point by a slow-motion credit crunch... LT borrowing rates actually AVAILABLE to consumers and corporations pushed high enough, by reluctance to lend, that they will precipitate and hasten the downward spiral.