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Strategies & Market Trends : Asia Forum -- Ignore unavailable to you. Want to Upgrade?

To: Jay Scott who wrote (6550)	9/21/1998 4:42:00 PM
From: Henry Volquardsen	Read Replies (1) \| Respond to of 9980

Jay, PPI tends to be a more volatile component. Also as our economy moves more and more to a services focus wage costs have much more of an impact on CPI than PPI does. So PPI may have a follow through impact on CPI keep an eye on wage costs. This is what the Fed has been increasingly focused on. A massive currency devaluation can have an inflationary impact. Import prices will definitely go up. However in terms of global spending power, all domestic assets and wealth get written down and relative spending power gets cut. This appears to be happening in Asia as there clearly has been a deflationary impact on the local economies. Yes they could print money to offset the cuts and this would generate inflation. But if they do this all they are doing is delaying the adjustment process. We would wind up with the same asset problems at a lower exchange rate. They need to recognize that they need to write off a portion of their wealth to pay for the bad investments that need to be written down. The currency is one way of doing that. At the same time I would reschedule all dollar (and yen debt) in to longer maturity local currency debt at market rates and put controls on local non domestic currency borrowing. Henry