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To: bob wallace who wrote (1520)	6/24/2003 6:56:55 PM
From: Chris McConnel	Respond to of 1822

thestreet.com The Buck Stops Where? Fed Won't Avoid Zero-Cost Deflation Insurance By David Gilmore Special to RealMoney.com When Federal Reserve Chairman Alan Greenspan speaks openly about deflation and zero-cost insurance against it, he does so for a reason: He wants the markets to know he is set to exercise that option at the June 24-25 FOMC meeting. Greenspan isn't forecasting a brush with deflation but simply recognizing that it's a sufficiently significant risk (greater than 5%). And with inflation low and market expectations of inflation low, there is no risk in addressing this low-risk outcome preventively. ... What does this mean for the dollar? See ya. It doesn't have a prayer in a deflation-zone defense thrown up by Greenspan & Co. But it has some downside limits imposed by the BoJ/MoF, as Japan is prepared to intervene the dollar/yen dynamic to infinity. This is also the likely path for the European Central Bank, yet only after certain deep denial; by then, deflation will have taken hold in Germany, if not France and Italy. If avoiding deflation here with zero-cost preventative medicine raises the risk of deflation in Germany and Europe, that is a tradeoff the Fed and certainly the Bush administration will accept. (David Gilmore is an economist and partner of Essex, Conn.-based Foreign Exchange Analytics, a currency markets advisory service for institutional investors.)