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To: Perspective who wrote (225155)	3/4/2003 9:48:59 AM
From: reaper	Read Replies (4) \| Respond to of 436258

BC <<In order for your argument to work, you'd have to see a true chain reaction (positive feedback) engage, where the initial dollar shock tips the lead domino, tons of people get laid off and/or consumers start saving bigtime, and even falling prices are unable to keep pace as effective purchasing power falls even faster than prices with the removal of consumer credit.>> precisely. i think it was magner who posted ealier today that people keep comparing the US to Argentina. but the US is not Argentina. the "import prices and inflation skyrocket when the dollar falls" is based on static, 'all-else-equal' analysis. when Argentina, which has a GDP smaller than Microsoft, crashes, then yes in fact pretty much all else is equal. when the US dollar crashes, its not. we are the consumer of marginal excess goods. the world NEEDS us to run a gigantic trade deficit or there would be 50mm more people unemployed in China and the German fiscal problem would be even more f'd up than it already is. goods prices are set by the cost of marginal production, not by currency regimes; and believe me, with all the excess productive capacity in the world right now the cost of marginal production is exceptionally low, and frankly more likely to FALL than to rise. <<This would certainly be true if foreigners started liquidating US treasury debt instead of sopping up all we care to issue. However, that would also jam interest rates upward, which I believe is the opposite of what you see.>> i guess the operative word here is "jam". i DO in fact believe that rates are going SOMEWHAT higher (say, a 5-handle on TNX) but only AFTER the current act we are in plays out (i.e. 2-handle on TNX). the precipitating factor will be the blow-up of the ridiculously over-crowded GSE/mortgage and structured finance trade. of course, the 'surprise' is going to be that the blow up of that trade will be brought on by LOWER rates that are indicative of deficient demand and earnings power, not HIGHER rates which is what everybody else is counting on to kill the housing market. i don't think i'm so off from most people here, just that i think the order of operations and precipitating events will be slightly different. i AM however arguing strongly against folks like the nutcase Mogambo Guru who think we are in for Argentinian or Weimar Germany style inflation. i am NOT negative on gold (as i have been accused by some); i am more agnostic; for the time being i think zero treasuries will perform about as well so i can own something i inherently understand. Cheers