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Politics : Stockman Scott's Political Debate Porch -- Ignore unavailable to you. Want to Upgrade?

To: Wharf Rat who wrote (21843)	7/11/2003 10:21:56 AM
From: Jim Willie CB	Read Replies (2) \| Respond to of 89467

Eric Fry on inflation, a very righton view of danger - "Inflation is returning," says Andrew Kashdan of Apogee Research, "and no matter what Greenspan says, that's not necessarily a good thing. Rising raw material prices are likely to squeeze already-thin profit margins. - "For all the apparent yearning for inflation (at least in some corners of our nation's capital), there seems to be scant celebration of the real thing. And for good reason...It's bad enough that some companies lack pricing power, and a squeeze from higher raw materials prices will only make it harder for them to profitably move the goods piled up on their shelves. Profits, employment and investment will all suffer. - "As for the prospect of a significant deflation in consumer prices, Paul Volcker has an uncommon viewpoint: 'If I were setting odds on deflation in the U.S.,' says the former Fed chairman, 'the probability wouldn't reach 0.1%. I see no prospect of real deflation like we had in the U.S. and other countries in the 1930s.' - "Whether or not the current Fed chairman agrees with his predecessor (and Apogee), we can't pretend to know. And Greenspan is in no position to give us a forthright opinion so long as his finger is suspended over the switch on the printing press. As the Financial Times put it, the Maestro is 'indicating just enough worry about deflation to justify low interest rates. The game rests, therefore, on frightening people, but only a little.' Perhaps we're in the minority, but we're more than a little scared...about inflation." - The bond market, too, seems to be a little bit scared about inflation. Bond yields have been rising briskly for the last few weeks. Furthermore, despite the pronounced weakness in the stock market yesterday, bonds still could not muster a rally. The 30-year Treasury bond fell 9/32 to yield 4.71%. - "Long-term interest rates have jumped over the last several weeks," says Bridgewater Associates, "and this jump is already starting to bite households. The average rate on 30-year mortgages has risen 31 bps in the last four weeks, and predictably, this increase has cut significantly into the refinancing boom that has helped to lower household debt burdens." - Last week, the Mortgage Bankers' Association's measure of new applications dropped 18% from the prior week and 27% from its peak in May. Therefore, Bridgewater concludes, "unless rates fall to new lows, the stimulative effect of mortgage refinancings is going away...The big question in our mind, as far as interest rates are concerned, is whether the US economy can survive a significant interest rate rise. We think it probably can't. Households and the economy as a whole are more sensitive to an interest rate rise than ever before. Refinancing has been at record levels and will soon collapse if rates don't resume falling." - If refinancings stumble, the economy will stumble close behind.