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Strategies & Market Trends : Mish's Global Economic Trend Analysis -- Ignore unavailable to you. Want to Upgrade?

To: gregor_us who wrote (1912)	3/12/2004 9:50:30 PM
From: Mike McFarland	Read Replies (2) \| Respond to of 116555

You will have to help out the newbie here, but what is the point of driving rates toward zero? Rates have fallen a lot already, and it seems not to buy the U.S. any jobs. Prices are up, real estate is up, I smell inflation. Why does the Fed not smell inflation? Six months ago I'd have believed the case for deflation. But so far I have not seen much evidence for deflation--with the exception of consumer electronics and the price of used cars. The price for services seems ever to climb. I'd have some remodeling done to my house, and some hardscape work to my yard, but for all the talk of high unemployment, nobody I contacted really seems to be hurting for work. At least, they do not call back or seem eager to give bids. I'm in Seattle--it is certainly possible that the booming housing market up here has everything out of whack. Cross the state, and I suspect it is entirely different in Spokane. I was talking to a fellow who follows the railroad companies--he said that they're running full and that, I think it was BNI, had ordered a bunch of new cars (?). I will have to look for the news on that, but this suggests to me the economy is not slowing down.

To: gregor_us who wrote (1912)	3/12/2004 10:25:13 PM
From: mishedlo	Respond to of 116555

Pulling Out the Rug financialsense.com

To: gregor_us who wrote (1912)	3/12/2004 10:54:29 PM
From: mishedlo	Read Replies (1) \| Respond to of 116555

The Current Account Deficit and The Bane of Inflationism prudentbear.com The inflationists like to view today's problems in terms of excess capacity and insufficient demand – both amenable to a shot of monetary chain lightening. And as debt levels become increasingly burdensome, some hair of the dog inflation becomes the effective routine. But there will be the inevitable day of reckoning. Beyond the more obvious issues, the U.S. today has a major problem not unlike Japan after their eighties inflationary boom. While CPI may have remained seductively quiescent throughout the Bubble, years of Credit excess profoundly inflated the underlying cost structure of the real economy. Even with a meaningful decline in the dollar, the U.S. is an increasingly high-cost economy. California only becomes a more prohibitively expensive place to do business as Credit inflation runs amuck. Sure, our less-skilled workers have undoubtedly enjoyed the combined fruits of low-cost foreign goods and surging home prices. But there will be the inevitable day of reckoning. The cost has been an only widening gap in our ability to compete globally – in our capacity to produce real economic wealth and not just perceived financial wealth. And it is certainly no coincidence that the Inflationist Alan Greenspan has devoted considerable attention of late to the shortcomings of our educational system, our government's over-commitment of future benefits, as well as warning repeatedly of the possibility of a protectionist backlash. At the same time, he is too eager to extol the virtues of “globalization” and “creative destruction.” And from Mr. McCulley: “…the leaders of sovereign countries rationally respond to exigencies beyond the economic doctrine of comparative advantage through free trade. This is nowhere more clear than in considering the political hot button of today called 'outsourcing' – the creative destruction of American jobs in the (capitalist!) pursuit of profits through lower labor costs beyond America's borders.” “Creative Destruction” may provide rather nifty cover, but it's definitely not the issue. We are in the midst of a truly pathetic case of inflating our way to financial debacle and economic impoverishment. And, damn right, there will be a backlash. Not only are many of our workers being priced out of the global marketplace, they are taking on enormous debts in the process. Come the unavoidable bust, there will be the natural search for scapegoats and villains. There will be a move toward protectionism, isolationism, and nationalism. And the inflationists will surely be quick to point blame at inept politicians, shortfalls in our education system, and powerful global forces outside of our control. And we will be challenged not to let them get away with it.

To: gregor_us who wrote (1912)	3/12/2004 10:55:19 PM
From: mishedlo	Respond to of 116555

Plunger comments on Roach..... An bit of a rant from Roach; I can only conclude Morgan Stanley is negotiatiing for a banking licence or a REIT or something in China. Why does he not mention that the Chinese flaunt US intellectual property laws, which given the US is so knowledge based should be a core export. But this deficit was not made in Beijing - it was made in Washington. That's right - courtesy of a runaway federal budget deficit, America has all but depleted its national savings. In order to fund the investment necessary for economic growth, that shortfall of domestic savings must be offset by surplus savings from abroad. The U.S. has no choice other than to run massive balance-of-payments and trade deficits in order to attract foreign capital. Roach has lost the plot here. The trade deficit was huge even during Clinton's time when the federal budget was in surplus. The federal deficit now is needed to help the private sector reduce its rate of indebtedness as assets cease to rise in value. China may have a trade balance overall but it exports consumables and imports capital goods. So in effect it is a net huge saver. As is Japan with its huge trade surplus. The trouble with the world today is that there are too many savers and not enough spenders. If Asia was better balanced the US would not need to run a federal deficit in order to try and make-up for inadequate global demand. Down the road it looks worse as China's saving and investment in productive capacity overwhelms strained US demand and indifferent demand elsewhere. This is what Japan went through the past 15 years and it hasn't been nice for them even though they have exported much of the problem of "no investment opportunities left" domestically. The world's problem is excessive saving in Asia. China is a major part and getting bigger. Plunger.

To: gregor_us who wrote (1912)	3/12/2004 11:15:12 PM
From: mishedlo	Respond to of 116555

Alice in Wonderland prudentbear.com While markets manage to be shocked and disappointed by job numbers every month, they are not upset by the downward revision of these numbers. We ignore the estimated 8 million jobs that should have been, but were not, created in this “recovery”- that is if this episode were like the past. Apparently this time it is different for those seeking work. Never you worry; it will be an above average recovery for investors. Clearly the rising duration of long term unemployment - now 5 months - is of no concern. The Fed keeps rates at five-decade lows while proclaiming the strength of the economy. The regulator of financial excess assures us that the nation's $22 trillion debt is not an issue. It turns out that 10% annual debt growth from consumers and 11% annual debt growth for the government is just as unimportant as a weak and falling dollar alongside half trillion dollar current account deficits.