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

To: ild who wrote (2614)	6/24/2003 12:17:12 PM
From: Perspective	Respond to of 4904

<Then there's the question of what Fed officials call the "exit strategy." The Fed got rid of the wartime 2.5% ceiling in 1951 only after a fierce battle with the Treasury, for which the ceiling held down borrowing costs. All these problems mean that while the Fed may still buy bonds, it is not likely as a stand-alone strategy.> Also, our currency was strong, and our economy a substantial net exporter and saver at that point in time. You can afford to do a little monetizing of debt under that scenario. Given our present debtor and yawning current account deficit, I think monetizing debt would simply crush the currency. Fine for US exporters, but it would damage the global economy and strangle US standards of living that depend heavily on imports. BC

To: ild who wrote (2614)	6/24/2003 12:29:47 PM
From: Perspective	Read Replies (1) \| Respond to of 4904

Once this little surge in the economy due to refis and tax cuts plays out, we'll face yet another deflation scare if my read is right. With the Fed signaling nervousness about the unconventional measures, (and they should be nervous) they will wait until the last possible moment to cut rates again. Of course, they think it's best to be "pre-emptive" and try to foster inflation, when what they should be focused on is a pre-emptive attack on the supply/demand gap. This would require tough love on the economic front, and risking a little deflation now to avoid an uncontrolled deflation in the future. Won't happen though; too politically distasteful. Fed will waste all its liquidity options without permitting any rebalancing, and then it will all happen in a sharp, violent correction. BC