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To: zonder who wrote (275545)	1/29/2004 12:53:03 PM
From: GraceZ	Respond to of 436258

I agree with you that inflation expectations go hand in hand with devaluation expectations. Not in a supply regime, see Japan during the nineties. Yes, that could be an incentive to buy gold for some of us. However, there are recent alternatives, like EUR. The EUR hasn't been much more of a hedge than buying the S&P and real estate and gold have seriously outperformed the EUR as a hedge. Besides, the fact that gold is quoted in USD is a disadvantage in its being a hedge against a possible devaluation of the USD, imho :-) Everything is quoted in US dollars, including the EUR. Because something is quoted in dollars doesn't mean you are holding dollars. The reason commodies aside from gold have been rising is because after years of falling prices in commodities the ability to ramp up production quickly has been hampered (in a twenty year bear market you continual take production off line to try to shore up price) so the increased demand for commodities from China raises prices instantaneously. This isn't inflation any more than declining prices in computer gear is deflation. It represents a time lag between increased demand and the ability (and desire) to add productive capacity to keep up with demand. Or, if you listen to Fedspeak, there is danger of deflation and Fed funds rate needs to be kept at 1% - at a level of negative real interest rates :-) Negative real rates only produce inflation in a demand regime, we're in a supply regime. In an environment where there is zero growth in loan demand, the funds rate has little effect. We haven't been able to put together two months of back to back increases in C&I for three years. Pay down exceeds new loan creation in commercial lending and has for the last three years. Consumer borrowing has experienced it's slowest growth in ten years. For three years the only growth in loan demand has been real estate but the real estate refinancing/ price readjustment is over unless interest rates drop again. It was a one time adjustment. Loan origination is down across all categories. In an environment with too much supply in the absence of demand no rate is too low. Rates aren't going anywhere until we see loan demand growing.