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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 (94052)	5/7/2008 1:31:26 PM
From: GST	Respond to of 110194

Inflation is now a global rather than a national phenomenon. In this new global context, the degree of inflation that we will experience is going to be a function of just how low the dollar goes. Global growth creates competition for scarce resources and at the same time creates competition in terms of relative levels of productivity and productivity growth. We now compete directly with billions of people seeking to make a living and seeking to consume -- this is relatively new. Inflation -- driven by scarcity and relative purchasing power -- is now embedded in the global economy. The issue is how bad will it get -- and the answer to "how bad will it get" will be seen most directly in the price of the US dollar. Our finances and our productivity/innovation levels will seal our fate. But most obviously, the extent to which inflation spirals out of control in the immediate future is a function of the dollar. Currencies in a global economy are driven by relative current account balances and economic growth rates. Think of it as a matrix -- you can have a CA deficit or surplus on one side of the matrix and you can have low/no/negative growth or hi/very-high growth on the other side of the matrix. China is high growth and CA surplus -- this practically assures that the RMB will go up. We are in the CA deficit slow growth quadrant -- that pretty much assures us that the US dollar goes down. Some countries are CA neutral or positive and slow growth -- they will do ok. Canada and Australia are also commodity producers in an inflationary world -- an extra bonus and likely to push up the CA balance. Net net -- the US is the worst of all worlds -- an inflationary world where confusion and finger point will simply become the dominant response. One thing is certain -- cutting taxes and lowering interest rates is a prescription for meltdown in the US economy -- and yet they are both the traditional knee jerk reactions to a slow economy.