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To: austrieconomist who wrote (9928)	4/18/2003 9:14:57 AM
From: Little Joe	Read Replies (1) \| Respond to of 39344

Could you answer a few questions about your post. Are you saying that you see deflation followed by inflation? or that we are in deflation now, and that will be followed by inflation? Have you considered the possibility that the government will just send out checks? My contention is that the two "tax refunds" were exactly that. The amazing thing is that in spite of the stimulus by way of added money supply, deficit spending, low interest rates, etc., we have not yet seen the expected inflation. I think this is telling us that the economy is horribly weak and eventually the government will panic and flood the market with money, which is why I think inflation is the likely outcome. What do you think about this proposition? In terms of investments, where do you think an investor should be putting his/her money now? Little joe

To: austrieconomist who wrote (9928)	4/18/2003 11:01:01 AM
From: russwinter	Respond to of 39344

One of the theories about monetary reflation is that much of it is now conducted through central bank reserve recycling activities from our trading "partners" (more correctly, one way suppliers), like China and Japan. Doug Noland suggests that agencies and other bonds are being monetized in this manner. This could arguably be a major USD market distortion, with huge inflationary implications. From Noland:http://www.prudentbear.com/archive_comm_article.asp?category=Credit+Bubble+Bulletin&content_idx=20970 ""International financial flows are accounted for in the “Rest of World” (ROW) sector. While the hype of the hyper-productive U.S. economy is unrelenting, foreign investors are in dramatic retreat. Importantly, Foreign Direct Investment (FDI) in the U.S. has collapsed. FDI surpassed $100 billion for the first time during 1997 ($109.3 bn), then jumped to $179 billion during 1998. The escalating financial and economic Bubble enticed $289.5 billion of FDI during 1999 and the high-water mark $307.7 billion for year-2000. Speculative FDI was stemmed, however, by the bursting equity/NASDAQ Bubble. FDI sank to $130.8 billion during 2001 and collapsed to last year’s $46.0 billion, the lowest level since 1992. Yet, our massive trade deficits create international dollar balances that must find their way to U.S. financial asset markets. Hence, Rest of World acquisition of U.S. Credit Market Instruments surged last year to $416.9 billion. This compares to 2001’s $320.6 billion, 2000’s $225.9 billion and 1999’s $139.7 billion. Last year, ROW increased holdings of Agencies by $126.1 billion, Treasuries by $99.3 billion, and U.S. Corporate Bonds (includes ABS) by $166.9 billion. It is worth noting that ROW made net Agency purchases of $11 billion during 1998 and $63.5 billion during 1999. Importantly, we do not expect FDI to the U.S. to recover for many years. And that the dollar has sunk in the face of massive purchases of U.S. securities portends ominous dollar vulnerability. If there is any waning of demand for Agencies and U.S. Corporates (especially asset-backs), we have a serious problem. The day our foreign-sourced financiers move to liquidate U.S. securities, we are faced with a calamitous dislocation. As goes Structured Finance, so goes the dollar.

To: austrieconomist who wrote (9928)	4/19/2003 5:39:38 PM
From: LLCF	Read Replies (1) \| Respond to of 39344

<Yes, the U.S. banking authorities may be likely to "hand out money on street corners" but the crucial investment information is THAT THEY ARE NOT DOING IT YET! These things take time, stemming from the injection of reserves into the system by purchases of bills or, has been speculated, longer term bonds. > True, and they aren't being aggressive yet even in the areas already available... ie. G being pretty tough on United Airlines and the like in getting loan guarantees for instance. That said, 1.) if the past in equity markets are any guide, one would expect POG and the equities to have made a massive move already by the time anything is officially announced. 2.) One could speculate that the $US could crash regardless and way ahead [due to stock and flow considerations] of those actions, sending POG and goods inflation flying. < Plenty of time to get in at the head of the line, as the impact is not seen for at least a year and my sense is that, even after a year, 70% of the crowd who will hop on the inflation train will not yet be in. > One would hope. DAK