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To: zonder who wrote (241011)	5/16/2003 8:45:28 AM
From: Bid Buster	Read Replies (1) \| Respond to of 436258

"a 2:1 split of USD" may not mean "double prices" for a long time. I don't think that was the case for 1920 Germany.. Hyperinflation has a way of feeding itself in a bad way when workers get daily cost of living increases, run to the bank the moment they get paid as the Mark devalued by the hour and buy food that goes up in price by the hour..The fact that people don't want to pay 40% more is moot if prices double every week...Many Germans of that era saw their life savings vanish in 3 months.

To: zonder who wrote (241011)	5/16/2003 9:15:59 AM
From: Earlie	Respond to of 436258

Z: Appreciate the comments. Best, Earlie

To: zonder who wrote (241011)	5/16/2003 12:12:13 PM
From: Perspective	Read Replies (4) \| Respond to of 436258

Z - I was doing a quasi-stationary analysis - ignoring the transient effects of how it would actually unfold. You are correctly raising the issues of implementation, which are huge. If it was just a 2:1 split, it would be simple, and the winners and losers obvious, with little fallout. The problem in implementation is that the transient behavior - the gradual upward adjustment of pricing - can take on a life of its own. The positive feedback can become so strong that the system becomes unstable and latches into hyperinflation. How do you see things behaving vs. the quasistationary analysis? It sounds like you think the pricing adjustment won't be equal to the devaluation, which I would support. That implies, however, that somebody is getting squeezed. I submit that somebody is corporate America, anybody importing raw materials and selling finished products. The value of their value-added is squeezed. More importantly, how do you think this impacts different asset classes? I would say that the squeezing of corporations is a huge negative for the valuation of equities. I would also say that, despite the obvious deflationary scenario, the ultimate impact on bonds will be negative, as the Fed will see to it that the holders are indeed paid back in devalued dollars. The only asset class that is supported is commodities, although not as strongly as in the direct 2:1 split. However, the thing that really moves prices in the asset classes is supply/demand, and I think with the other negatives applying selling pressure to equities and fixed income, the relative safe harbor of commodities may mean a real flood of investing interest, and outsized price gains - basically a reversal of the last two decades. Heinz raised a new issue that I hadn't considered - how in the world does the Fed back itself out of the extraordinary measures it is taking to jam interest rates negative? If and when it is successful in reflationary efforts, who exactly in their right minds would be willing to step up and buy a long bond from the government at negative interest rates? The Fed wants to erase the debt on the books, pay everybody back in devalued dollars, but hold rates at zero across the curve. I guess it just crashes our currency and purchasing power on the global scene. Somehow that doesn't make sense. If it at any point begins to defend the currency, the whole thing collapses. If they continue to support negative interest rates, they must continue buying treasuries, cratering the dollar further. If they let up, there is nobody in their right mind that would hold a long bond with a negative interest rate without a Greenspan put (bond put that is) to guarantee their return. He's painting himself into a corner. BC