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

To: KyrosL who wrote (2577)	6/23/2003 10:48:45 AM
From: Perspective	Read Replies (1) \| Respond to of 4907

The problem is that, if they monetize the debt now, they would force rates even further lower, using up the last little bit of interest rate leverage they have left. Monetizing the debt is actually part of what they consider to be "unconventional" measures. I don't expect them to begin that until rates are truly at zero, and it will probably be accompanied by similar measures from Europe and Japan. The result will be negative real interest rates, a substantial inflation, and eventual capital flight by creditors from all paper assets into strict capital preservation mode. Creditors will rediscover the few ways of preserving purchasing power in a sharply inflationary period. Once the Fed begins propping the long end of the yield curve, in addition to the short end, they won't be able to stop. They will further widen the gap between actual and market rates, and any attempt to return them to market rates will result in immediate economic shock and financial instability. For the next year, though, focus on the upcoming waiting campaign by the Fed, and another deflationary scare. BC