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To: Mannie who wrote (4527)	5/23/2003 7:21:07 PM
From: Jim Willie CB	Respond to of 5423

a few factors on USTBonds from an Asian perspective (as best as I can) if rates fall from 1.1% now to 0.7%, then the rise in principal is small, surprisingly small during that time, if the dollar drops some more versus the Taiwan Dollar or JapYen, then the net result is falling value of their bond portfolio Asian banks are chock full of USTBonds their declining value from currency translation will carry with it reserve requirement implications bigtime damage to banking systems, just like what happened in Japan outside Japan this will happen gradually also, the USEconomy is likely to fall into recession, after this minimal stimulus fades, and it surely will as we slow, our consumption of Asian imported products will also slow down this will hurt Asian exporters when the banks are getting hurt the big question is whether the USGovt deficits will rise faster than the ability and willingness of Asians to finance our debts (federal debt plus Fanny agency debt) I think USGovt debt will outpace, overtake, and cause problems in financing this will cause some marketplace driven higher rates, since Asians will slowly pull back in their USTBond purchases sure, they will buy some, but they will pull back just at a time when imported product price inflation will appear so two factors will work, one the buy-sell dynamics the other is arrival of price inflation in statistics TBonds will have more supply than demand (esp by Asians) imported price inflation will show up in CPI the CPI shows product prices, not so much services and the other usual stuff like taxes and insurance imports show up in CPI this is how I expect higher interest rates to hit us it occurs since we are unlike Japan regarding our vulnerability to currency risk from our trade gap that risk does not exist in Japan there is no way the USGovt can stop this / jim p.s. as usual the stimulus tax bill will only enable sustained consumption it will do little to relieve US corporations of extreme tax burden, the highest in the industrial world