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To: Threshold who wrote (15740)	11/20/2003 11:28:07 PM
From: Bucky Katt	Read Replies (10) \| Respond to of 48461

Alan Greenspan said in a speech today to not worry about the current account deficit. "Spreading globalization has fostered a degree of international flexibility that has raised the probability of a benign resolution to the U.S. current- account imbalance." What the F did he say??

To: Threshold who wrote (15740)	11/21/2003 10:38:22 AM
From: Skywatcher	Respond to of 48461

Here's the scary part of how dangerous the Bush policy is.... An important read: The vast majority of US growth over the last 10 years has been made possible by an unparalleled and unsustainable credit boom engendered by historically low interest rates. The interest rate trend has only been possible because of the deflationary effects of productivity and the globalization of production - which always moves the production of goods to the cheapest source. This, combined with the US Dollar's special status as the world's reserve currency has saved the world from inflationary pressures. This might all be coming to an end. The Bush administration, if it promotes protectionist measures, would be aborting the entire beneficial cycle that has brought the US economy to where it stands today. A trade war fuelled by domestic populist ("Buy American!" and "Protect American jobs!") sentiments at this point would have cataclysmic impact on the purchasing power of the dollar and would start a new and viciously inflationary cycle. First, the weakening dollar trend all by itself will at some point bring higher import prices and inflationary pressure. Second, prices in the US would rise dramatically in a tariff-rich environment, causing an increase in interest rates. A rise in interest rates shuts down the cheap credit addicted American consumer and the booming mortgage market, which will derail the consumer-driven American economy. Shutting down the American consumption engine also shuts down export economies that depend on it. The babies you throw out in this particular ocean of bathwater are the buyers of American treasuries, and therefore the financers of the colossal US Budget Deficit: take Southeast Asia, for example. Together, Japan, China, South Korea and Taiwan currently hold about $1.3 trillion in reserves - most of them in US Dollars - about the same as the entire M1 money supply in the US. For years, the Southeast Asian countries have been sending real goods and services in return for a growing government stock pile of dollars, for which they have no use. Taken by itself, this is an unsustainable trend - and a trade war would only serve to rapidly accelerate its demise. Suddenly you have a world in economic hurt that is awash in dollars, a world that can no longer finance the spiralling US Budget Deficits. The inflationary effects of this are almost unimaginable. With so many holders of this debt and not enough new buyers, there will be an unprecedented imbalance in buyers and sellers of both US Dollars and US-denominated treasuries. The exit window for this sorry lot of holders will not accommodate everyone at once - only a massively depreciated US Dollar and higher US interest rates would bring things back into balance. The end result: low growth with massive inflation, higher gold prices, a massive bear market for US Treasuries, and new lows in the US stock market. This may be early days, but this administration is clearly too shortsighted to cope with the impending problems of the US economy. It may sacrifice the global economy in its bid for re-election in 2004. CC