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To: mishedlo who wrote (267319)	11/17/2003 5:19:26 AM
From: zonder	Respond to of 436258

If housing does not collapse (or at least slow, even a modest 10% would do it IMO for the deflation scenario to kick in) Not sure I agree with you. Why would an economy plunge into a deflationary spiral if housing growth slows by 10%? Prices of houses, construction companies, real-estate developers' valuations, etc would "deflate", but why should that translate into the economy at large? Unless interest rates rise sharply and quickly in the US, causing massive defaults, the credit bubble (within which resides the housing bubble, imho) has a pretty good chance of dissipating without a loud crash. Sure, some of more adventurous borrowers will go belly-up, but I don't see why that should translate into deflation for the whole economy. Everyone is worried about interest rate hikes. I ahave ahuge leveraged position in eurodollar futures, spreads, and short puts that says interest rates are not rising (or if they do, not buy much). Ouch. If you are talking only about the US, you might be right that interest rate hikes are not an immediate worry. Maybe an initial hike in 2H2004. Elsewhere, however, rate hikes have already started. Countries with no particular vested interest in keeping rates down artificially (like the US) will start hiking in 1H2004, imo. I'd hate to be you when that happens :-) After that we do a Japan and rates head to .25% I think that is a very pessimistic world view, one that ignores the fundamental differences between Japan and the US which renders the latter a more resilient economic environment. The Fed has been very careful to keep the credit bubble from imploding. They have lied and misled and pumped money to the system like there's no tomorrow. I doubt if they will just give up and let it burst now, when the economy has just started to pick up. I see it more likely that they will carefully deflate the bubble, and while that will mean the end of the party for homebuilders and the more careless homeowners, it will not do a China Syndrome and spread across all parts of the US economy, causing a deflationary spiral. Just my opinion, of course. We will see soon enough which one of us is right...