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To: Tommaso who wrote (276368)	2/5/2004 10:56:42 AM
From: mishedlo	Read Replies (1) \| Respond to of 436258

Much of current personal debt will have to be wiped out by bankruptcy, both of individuals and institutions--perhaps even entire states. This event would be profoudly deflationary except that Federal government expenditures will continue, and also personal bank balances will be protected by the FDIC. The government will have to create money to cover these expenses. Borrowing by indivudals and businesses, however, will become more difficult and credit-worthy borrowers will have to pay higher rates. Agreed but we do not see that inflation until a good portion of those debts are written of by Bankruptcy. Look how long Japan was able to hold off (and still are!). Not sure we can hold off that long but it sure will not be overnight or next year. Mish

To: Tommaso who wrote (276368)	2/5/2004 10:59:50 AM
From: mishedlo	Read Replies (1) \| Respond to of 436258

On the international level, as soon as the Chinese and Japanese cut back on their purchases on US Treasuries, the government itself will have to pay higher interest to auction its bonds. Or so it seems to me. Again I agree but everyone think soon, and I think no sooner that 2 years from now, and possibly not even then. I actually expect long term rates to fall, not short term rates to rise. The trend will continue until it can't. That can be a long time for investment purposes and I think will wipe out tons of treasury bears in the process. Mish