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

To: John Vosilla who wrote (48193)	12/26/2005 7:15:42 PM
From: Kailash	Read Replies (1) \| Respond to of 110194

It seems to me it's this tension that will dominate Fed policy in the time ahead, and it's a natural outcome of living above your means. Large fluctuations is one possibility, but they're going to try to hit a stable middle course. This course is not going to be pleasant -- interest rates will be too high to sustain economic growth in the US, and too low to pull in all the desired capital to cover the deficits. That's the slow grind down model, and the likely casualty is the dollar. What they appear to want to do is to do a slow and sustained devaluation stretched over a period of several years. Such a devaluation will hurt America's creditors, and the common knowledge that the US is planning such a devaluation should lead our creditors to want to spend their money fast on real assets. As they transfer real wealth and not just debt to their own economies, they will increase their financial independence. This will make the dollar more vulnerable to active predation. Wild fluctuations would of course be a far more interesting environment to invest in, but hardly desirable on other counts. The danger to such fluctuations is that they can go out of control and will be impossible to rein in. K