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Strategies & Market Trends : The Epic American Credit and Bond Bubble Laboratory -- Ignore unavailable to you. Want to Upgrade?

To: mishedlo who wrote (5866)	1/22/2004 5:42:53 PM
From: Jim Willie CB	Respond to of 110194

a good wrapup by Mike Hartman of Puplava's Financial Sense / jim The currency wars are moving into full stride as the rhetoric picks up momentum back and forth across the Atlantic. I won’t go on to list the numerous quotes over the last two weeks between the officials from Europe and our policy makers here at home. What they are saying is basically this: The U.S. view is to stimulate and inflate, while the European view is to restrain deficit spending and maintain monetary discipline. The European Union is holding their ground to refrain from intervention that would weaken the euro while the U.S. is determined to devalue the dollar (create lots more of them) in an effort to re-inflate the world. Currency debasement (making our money worth less) can help in the short-term, but history is filled with the long-term damage caused by governments who deliberately devalue their currency. Throughout history, monetary debasement has been the precursor to an empire’s loss of power. The most recent example is Great Britain around the turn of the century. Back in the 1800’s people would have laughed at you if you told them Great Britain was going to lose its global dominance to the up and coming Americans. They would have thought you were crazy. Coming back to the 21st century, a very clear signal has been sent to our officials from the European Central Bank in the beginnings of the lead-up to the G-7 meeting later next month in Florida. ECB council member Nout Wellink said an interest rate cut wouldn’t halt the euro’s gains against the dollar. Mr. Wellink said, “There is no need to take special measures” when finance ministers from the G-7 countries meet in February. Mr. Wellink also said, “The forces at work are much stronger and can’t be neutralized by a minor change in rates.” He is implying that there are some big structural problems with interest rates and currency exchange rates. This year 2004 will prove to be a very political time with the presidential elections and all the international tensions. We will have to keep a very close eye on interest rates to see who is forced to move first. It could also be that the politicians do not have the final say in the direction of interest rates. One of these days the bond market will wake up and demand higher rates to offset the eroding value of the dollar or foreigners will stop supporting our dollar and bond market. Either way, interest rates will definitely go higher; it’s just a matter of time. At that point we will know if the enormous gains in real estate the last few years are real or just another bubble like we saw in stocks. Time will clearly tell! Mike Hartman