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Strategies & Market Trends : Heinz Blasnik- Views You Can Use -- Ignore unavailable to you. Want to Upgrade?

To: GraceZ who wrote (2322)	6/10/2003 12:31:06 PM
From: Perspective	Respond to of 4912

What still smells is the trade deficit. It can't persist at these levels for long before producing inflationary effects. And I see the trade deficit primarily coming as a result of Fed manipulation of interest rates, creating a sizeable mortgage bubble. The Fed is encouraging the mortgage bubble to sustain an unsustainable level of demand. It either craters the dollar (yes, further than it has already fallen) or requires increased ease on the part of foreign governments - a global bonfire of the currencies. The fact is that we are struggling at an unsustainable level of aggregate demand under the weight of a debt load that can't be increased, even with near-zero interest rates. The only way to get out of the box is to shrink the effective burden of the existing debt, and since the Fed controls the value of the ruler in which those debts are denominated, they modify the ruler (the dollar) however it is necessary to sustain demand where it is. Don't fight the Fed on this; they control the currency. It will fail to sustain real demand, as corporations are squeezed and unemployment rises. But at least falling price levels won't magnify the existing debt load. Slowing money supply growth is just an indication of how strong the deflationary headwinds are that the Fed is fighting. BC