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Politics : Dutch Central Bank Sale Announcement Imminent? -- Ignore unavailable to you. Want to Upgrade?

To: Ahda who wrote (3898)	3/4/1999 10:21:00 PM
From: Hawkmoon	Read Replies (1) \| Respond to of 81094

Darleen, We have too much production and too little demand. Right now with Asia in economic turmoil, they are more inclined to produce than consume. And the more they produce, the more they oversupply the available market demand. So how do we bring the supply/demand equation back into equilibrium? Well, the Japanese can induce inflation by printing money in the hope that depositors will feel inclined to buy things (rather than ship their money elsewhere were it could appreciate). Or.... they can liquidate some of the excess production, which will cost folks a lot of jobs and lead to a lot of debt defaults. But the problem is that the Japanese are in a liquidity trap. They can't add liquidity by lowering the BOJ discount/overnight rates since all the available decreases have been incrementalized and rendered ineffective (rates in Japan still hover aroung .05% for money from the BOJ leaving little wiggle room left). And emerging nations are in a debt trap. They have to continue to maintain revenue streams to pay off the enourmous debt loads they carry. Remove the debt, you can reduce production of commodities to prop up their price (ie: default or debt moratoriums). So the same will go with the US dollar and Fed Funds/discount rates. While the US corporations can not avoid being harmed by what is going on overseas in many sectors, we are still inherently a self-sustaining economy (with a few exceptions like oil.. etc). If I recall correctly some 80% of US GDP is generated domestically and not through foreign trade. Make no mistake we are doing the rest of the world a favor (which is in our interest, of course), by keeping our trade doors open until their domestic demand can be re-established. If you can't re-establish demand from foreign consumers, you have to contract production. Right now by floating this trade deficit, we are trying to accelerate the former and avoiding the latter. The former, should it succeed, will likely ignite inflation down the road for the US economy which will later have to be dealt with. But IMO, the prevailing belief suggests that the Fed believes that inflation is a far easier dragon to slay than deflation and depression. Regards, Ron