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

To: valueminded who wrote (6581)	5/18/2004 10:48:13 AM
From: mishedlo	Read Replies (3) \| Respond to of 116555

Deflation will only be possible if we get a FED (ie if Voelker was in now) that decides interest rates are too low. Disagree strongly and Japan proved it. People out of work with no credit will not be able to buy and prices of assets will fall. People are living off of home refis, praying for a job turn-around. If that does not come, and the credit spigots turned off, it is all over even at .5% interest rates. Commodities are soaring primarily because of huge demand in China. That demand has little to do with interest rates in the US IMO. Already this economy is pushing on a string and even slightly higher interest rates may, and probably will do it in. If you belive that housing will tank on relatively small hikes, then you believe in deflation but you just do not know it yet. Look at all the jobs assoicated directly and indirectly with housing. What do you think happens if those jobs are gone? Inflationary? Hardly. Deflationary bust. Mish

To: valueminded who wrote (6581)	5/18/2004 2:49:22 PM
From: Earlie	Respond to of 116555

Chris: Good comments. Under certain circumstances, I could agree with you, but the problem, as I see it, is that the planet is awash in US print money and US debt paper, which MUST be maintained in place (any heavy selling would bring the whole house of cards down). Unfortunately, the interest rate required to keep all that wall paper from flooding home is set by the buyers, not the sellers, hence if the "bond boyz" come to feel they need more "juice" to cover the perceived risk, they WILL get it whether the Fed likes it or not. Yes, the Fed would love to induce a nice dose of inflation but so far (and in spite of many pronouncements that it is all-but-dead) deflationary forces continue to threaten. From my perspective, Alan is in the jungle and has precious little ammo left. Best, Earlie