The Dogma of Low Interest Rates Is Wrong 100 comments
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In The Unintended Effects of Bad Policy (May 18th), I wrote that:
[L]ow interest rates often have the opposite of their intended effect. Extremely low interest rates can vacuum liquidity out of nations. Japan has been referred to as a nation where loose monetary policy was like "pushing on a string." There was no push. It was a pull. Liquidity was sucked out of the country as the Yen became the world's carry trade currency of choice. Borrowing in a currency is the opposite of investment. It is liquidity-draining to the carry trade currency nation. For all of the talk about using monetary policy to dampen the business cycle, no result could be more damaging or procyclical.
Americans may finally realize that there is a free lunch after all--we will be supplying it as speculators borrow in our low-yielding currency to invest elsewhere.
Yesterday that debate was conclusively laid to rest with the latest numbers from the NSX on net flows into ETFs.
- YTD, $25.264 billion has flowed out of U.S. Equity Long ETFs.
- YTD, over $13 billion has flowed into U.S. Short and Short Leveraged ETFs.
Conversely,
- YTD, over $17 billion has flowed into Global Equity Long ETFs and less than $1billion has flowed into Short and Short Leveraged Global Equity ETFs.
- YTD, over $24 billion has flowed into Commodity ETFs and less than $0.5 billion has flowed into Short Commodity ETFs.
Capital goes where it is treated best, like customers for fine dining. When meal sizes are anemic and interest rates are low, customers leave and head for more hospitable, higher yielding environs, or commodities.
Economists take it as unquestioned dogma that low interest rates are stimulative. Of course, ultra low interest rates are not stimulative to the real economy, they just increase asset prices. Rather than accept conventional arguments using faith based reasoning, a far more scientific approach is to examine the evidence.
I would argue that extremely low interest rates suck investment funds and liquidity out of nations. You heard it here first, and the evidence is clear. Money has flowed out of U.S Equity ETFs and into Global ETFs.
Many argue that the U.S. could never share Japan's experience of a quarter century bear market in which stocks dropped over 75% with interest rates at or near 0%.
If we do not wish to share such an experience, why are we repeating the same policies which led to such results? What policies did Japan pursue? Near zero interest rates, the propping up of zombie banks, and the arbitrage of replacing of managerial competence at financial institutions with political competence aimed at securing taxpayer charity.
Does this sound familiar? Money flowed out of Japan starting in the early 90's and into economies such as ours. The tech boom was supercharged by a massive Japan-funded carry trade. We may be funding such a boom in emerging markets and commodities right now to our detriment. Liquidity and investment funds will continue to flow out of the U.S., as they have, if we do not change policies which are contradicted by logic and clear evidence.
The public needs to understand that good policies are not about slogans, or personalities--they are about sound quantitative practices based upon clear arithmetic. As Keynes said of inflation, less than 1 person in 100 may understand it, but turning the dollar into a carry trade currency is unsound, procyclical, and will suck liquidity and investment funds out of the U.S. to our long term detriment.
For the investor, global macro is about understanding the global flows of capital and the drivers behind them. Sound advice is to follow the money.
Disclosure: Long EEM, FXI, PGJ, FCHI, HAO, EWZ, GXC, GLD. Positions may change at any time.
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He went on to explain how I had to avoid debt at all costs. Sure enough, I gained total economic freedom by the age of 50 and although I am not rich, I am not in danger of losing my home, for example.
Saving is important. When some people pay off debts, this allows the next generation who are starting their families to pile on some temporary debt. But when interest rates are ARTIFICIALLY low, then we get no savings and much more debt.
The US government as well as Japan both went very deep into debt with ZIRP (zero interest rate program) debts. That is, the cost of borrowing money from taxpayers or selling debts to dangerous foreign trade rivals like China, is very low. So there is a desire to pile on more and more debt since servicing it is so cheap.
But the PRINCIPAL remains to be paid! This is the killer. This is the kick in the teeth. This is the chain that locks you in a prison! Not interest rates. So, due to cheap lending to governments being such a temptation, they fall into the trap of building up massive credit principal due on loans and eventually go bankrupt when they have to roll over a mountain of cheap debts.
That is, if interest rates rise even a slight amount, this will force a default. This is why ZIRP is a trap, not a way to stimulate an economy.
Namely, the number of hours worked to buy basic goods and services rises relentlessly. Japanese wages have fallen much faster than prices over the last 15 years. Car ownership in Japan is below 1987 rates, for example.
This is a hidden inflation! The cheap lending is for only the wealthy who can afford to pay up easily but are looking for free money to invest. Then, they simply send it overseas in some carry trade deal! Thus, the funds depart and the home base is more depressed.
When Japan fell into a depression, this was purely domestic. Toyota grew to the #1 automaker in the world during the Japanese depression, for example. While seeing declines in domestic sales.
But if the US can't buy endless Japanese cars, this hammers Japan greatly! Japan's economy nearly totally collapsed during 2009 due to the Japanese carry trade vanishing in the US sector (but NOT vis a vis Australia, for example!).
Australia buys far fewer cars than the US. Japan wants the US to receive Japanese carry trade deals. My blog emsnews.wordpress.com talks about this topic endlessly. It is life and death for us to understand that ZIRP is a trap.
ETFs are not the United States. They are preferred vehicles for speculators who play fads and momentum.
There is a giant flow of capital to the US. It is called the trade deficit. It is less giant than it was a year ago, but real capital continues to leave Asia and land in the US.
People who simultaneously want to run up currency balances and attract and use real capital do not understand basic accounting, and want to eat cake and have it.
Whether it makes economic sense for Americans to run trade deficits depends entirely on whether the future return from holding dollar bonds at near zero interest rates will be greater or less than the returns from investing real capital in the US. Those simultaneously moaning that the dollar is certain to implode while real everything must soar, and that the trade deficit is ruinous, do not understand basic accounting either. Foreign savers are the ones going long the dollar by accumulating our bonds; we are the ones going long real assets by buying things for issued debt.
As usual, the doom mongering press and pundit set looks at one half of each transaction and predicts horrors from a selected side of it, while pretending the other side does not exist.
The reality is there is no inflation in the US, it is a deflation, and the world has yet to get used to Americans saving for their own capital needs instead of outsourcing it. Interest rates at zero reflect the complete lack of bargaining power of our foreign creditors, who simply do not see how or where to invest their own savings.
If they learn to, fine, we save to fund our own investments and the trade deficit disappears. They've got a giant pile of dollar claims, we've got tons of real stuff already delivered and worth every cent paid for it, to a free consumer.
Everyone is trying to tell other men what to do with their own wealth...
There is no inflation in the U.S.? That must be why gold prices are making new highs! Silly me!
Oh, Oracle JasonC, tell us more wisdom for the ages!
On Oct 07 06:07 PM JasonC wrote:
>
> ETFs are not the United States. They are preferred vehicles for speculators
> who play fads and momentum.
>
> There is a giant flow of capital to the US. It is called the trade
> deficit. It is less giant than it was a year ago, but real capital
> continues to leave Asia and land in the US.
>
> People who simultaneously want to run up currency balances and attract
> and use real capital do not understand basic accounting, and want
> to eat cake and have it.
>
> Whether it makes economic sense for Americans to run trade deficits
> depends entirely on whether the future return from holding dollar
> bonds at near zero interest rates will be greater or less than the
> returns from investing real capital in the US. Those simultaneously
> moaning that the dollar is certain to implode while real everything
> must soar, and that the trade deficit is ruinous, do not understand
> basic accounting either. Foreign savers are the ones going long the
> dollar by accumulating our bonds; we are the ones going long real
> assets by buying things for issued debt.
>
> As usual, the doom mongering press and pundit set looks at one half
> of each transaction and predicts horrors from a selected side of
> it, while pretending the other side does not exist.
>
> The reality is there is no inflation in the US, it is a deflation,
> and the world has yet to get used to Americans saving for their own
> capital needs instead of outsourcing it. Interest rates at zero reflect
> the complete lack of bargaining power of our foreign creditors, who
> simply do not see how or where to invest their own savings.
>
> If they learn to, fine, we save to fund our own investments and the
> trade deficit disappears. They've got a giant pile of dollar claims,
> we've got tons of real stuff already delivered and worth every cent
> paid for it, to a free consumer.
>
> Everyone is trying to tell other men what to do with their own wealth...
On Oct 07 06:12 PM Harry Long wrote:
> A vehicle for speculators? Then I guess every retiree in the SPY
> S&P EFS is a momentum "fad" speculator. Silly me!
>
> There is no inflation in the U.S.? That must be why gold prices are
> making new highs! Silly me!
>
> Oh, Oracle JasonC, tell us more wisdom for the ages!
1. You say that "Clearly, money is flowing out of the U.S. You've lost the debate. Accept it. The evidence shows that you are wrong." To remind you, the debate is not about whether "money is flowing out of the U.S. ". The debate is about whether, as you originally claimed, this is a) due to interest rates and b) "to our detriment".
I maintain that the lack of good investments in the US, compared to overseas, is a primary cause of this money flow. (In fact, I believe that an increase in interest rates would cause even more money to flow out of US equities - the reverse of what you imply - but we don't need to discuss that). I also maintain that there is no evidence of a lack of liquidity, either in the US, or Japan, or anywhere else that is relevant to this question. If you want to win the argument, you need to show, not just that there is a money flow, but that this, as you claimed, a) is due only to low US interest rates, and b) "will suck liquidity and investment funds out of the U.S. to our long term detriment".
2. My claim regarding low interest rates is not just that they "can be stimulative to the real demand for goods and services" as you say. I claim that they can stimulate the economy in other ways too. In particular, they encourage investment. If you've ever owned a business, as I have, then you would know that this is true. This investment increases productivity and so is deflationary, rather than inflationary.
3. In relation to your inflation point, you say that "My Tide argument wins this part of the debate, by showing that price increases reduce the aggregate quantity demanded for goods". To emphasize what I said in my previous comment, you did not show that at all. You showed that this could happen in hyperinflation - where price rises exceed wage rises. You do not seem to have understood that this is not what happens in 99% of inflationary economies.
In most economies over the last century at least, inflation has been positive, but wages have increased faster than inflation. This is mainly due to productivity. The result of this is that inflation does not lead to reduced demand. It has actually led to increased demand. Taking an example that all of you deflation lovers get excited about - since the Fed was formed, the dollar has lost 95% of its purchasing power. This actually means that inflation has been 3% pa compounded. But, over the same period, GDP per capita has grown at 5.7% pa. This would not have been possible if inflation destroyed aggregate demand.
I need to go now. As someone once said, "time and Tide wait for no man". But if you do post a reply, I will read it later.
On Oct 07 05:41 PM Harry Long wrote:
> I agree that we should examine issues seperately.
>
> First, is the suppply of money. All inflation is monetary. Long term
> inflation can only occur because of a decrease in the money supply.
> Long term deflation can only occur because of a decrease in the money
> supply. With fixed budget constraints, even a spike in oil does not
> create inflation in average prices, because less money is available
> to spend on other goods. All inflation is monetary.
>
> You argue that low interest rates, even if they are inflationary,
> can be stimulative to the real demand for goods and services. I argue
> that it only increases prices, long term. That is the current state
> of the debate. My Tide argument wins this part of the debate, by
> showing that price increases reduce the aggregate quantity demanded
> for goods. That is why the argument is so important.
>
> Second is the flow of money. You must concede that money is flowing
> out of the country due to carry trades. I have shown evidence for
> it happening currently. It is well known that Tiger, etc in the 90's
> engaged in Yen carry trades, they even discuss it. So, the issue
> of flow is settled. Money flows in the direction of higher real interest
> rates.
>
> Third, your rhetorical technique is to say that I have no evidence,
> when the evidence disagrees with your points. Money is flowing out
> of the U.S. I have provided data for this in my article, which you
> ignore. To refresh your memory:
>
> "Yesterday that debate was conclusively laid to rest with the latest
> numbers from the NSX on net flows into ETFs.
>
> YTD, $25.264 billion has flowed out of U.S. Equity Long ETFs. <br/>YTD,
> over $13 billion has flowed into U.S. Short and Short Leveraged ETFs.
>
> Conversely,
>
> YTD, over $17 billion has flowed into Global Equity Long ETFs and
> less than $1billion has flowed into Short and Short Leveraged Global
> Equity ETFs.
> YTD, over $24 billion has flowed into Commodity ETFs and less than
> $0.5 billion has flowed into Short Commodity ETFs. "
>
> Clearly, money is flowing out of the U.S. You've lost the debate.
> Accept it. The evidence shows that you are wrong.
I don't think they suck liquidity out of the country. Japan is suffering from major demographic problems (it is not the oldest society in the world) and its population is actually declining. It has bigger problems than low interest rates.
No, if a country chooses to be at zero percent, it sees all savings flee this system because they can grow WITHOUT MUCH RISK in other places. This is why so much flowed to the US but no more.
If I were to argue with your points I would have to first clarify your messes like this where you argue that the rate of inflation doesn't matter but then discuss how it matters.
> The real interest rate matters, not the rate of inflation.
> 30 year bonds purchased in the 80's, as Volcker came in ended up paying a high real rate of interest. Inflation came down, but there
> was no deflation.
Then you would argue with me by introducing another nearly correct, but not quite, definitional point, and provide another goofy example. Lose lose.
But, back on point, here's your main thesis:
>Extremely low interest rates can vacuum liquidity out of nations. >Japan has been referred to as a nation where loose monetary >policy was like "pushing on a string....The tech boom was >supercharged by a massive Japan-funded >carry trade. We may >be funding such a boom in emerging >markets and commodities >right now to our detriment.
You've done nothing to support your argument that people are borrowing US dollars to support a global carry trade, nor that liquidity is being pulled out of the US. Moreover, USD aren't necessarily coming out of the US - US capital allocations be driven by shifts away from dollarization and foreign USD reserves (i.e. China buys aluminum rights in USD, or the Saudi's take some USD out of their vaults, literally, and buy Euros).
On Oct 07 05:50 PM Harry Long wrote:
> What a one-sided question. Many retirees with 401Ks place them in
> foreign stock and bond funds.
>
> Toyota is an example of how an appreciating currency does not affect
> the real economy long term, namely the price competitiveness of cars
> from Japan.
>
> Try to argue with my points, rather than mis-representing them.<br/>
On Oct 07 07:32 PM pacalis wrote:
> First it was a rhetorical question. Second your examples are pure
> distraction.
>
> If I were to argue with your points I would have to first clarify
> your messes like this where you argue that the rate of inflation
> doesn't matter but then discuss how it matters.
On Oct 07 06:44 PM chap08 wrote:
> Harry, at least your purpose has become clearer. But:
>
> 1. You say that "Clearly, money is flowing out of the U.S. You've
> lost the debate. Accept it. The evidence shows that you are wrong."
> To remind you, the debate is not about whether "money is flowing
> out of the U.S. ". The debate is about whether, as you originally
> claimed, this is a) due to interest rates and b) "to our detriment".
>
>
> I maintain that the lack of good investments in the US, compared
> to overseas, is a primary cause of this money flow. (In fact, I believe
> that an increase in interest rates would cause even more money to
> flow out of US equities - the reverse of what you imply - but we
> don't need to discuss that). I also maintain that there is no evidence
> of a lack of liquidity, either in the US, or Japan, or anywhere else
> that is relevant to this question. If you want to win the argument,
> you need to show, not just that there is a money flow, but that this,
> as you claimed, a) is due only to low US interest rates, and b) "will
> suck liquidity and investment funds out of the U.S. to our long term
> detriment".
>
> 2. My claim regarding low interest rates is not just that they "can
> be stimulative to the real demand for goods and services" as you
> say. I claim that they can stimulate the economy in other ways too.
> In particular, they encourage investment. If you've ever owned a
> business, as I have, then you would know that this is true. This
> investment increases productivity and so is deflationary, rather
> than inflationary.
>
> 3. In relation to your inflation point, you say that "My Tide argument
> wins this part of the debate, by showing that price increases reduce
> the aggregate quantity demanded for goods". To emphasize what I said
> in my previous comment, you did not show that at all. You showed
> that this could happen in hyperinflation - where price rises exceed
> wage rises. You do not seem to have understood that this is not what
> happens in 99% of inflationary economies.
>
> In most economies over the last century at least, inflation has been
> positive, but wages have increased faster than inflation. This is
> mainly due to productivity. The result of this is that inflation
> does not lead to reduced demand. It has actually led to increased
> demand. Taking an example that all of you deflation lovers get excited
> about - since the Fed was formed, the dollar has lost 95% of its
> purchasing power. This actually means that inflation has been 3%
> pa compounded. But, over the same period, GDP per capita has grown
> at 5.7% pa. This would not have been possible if inflation destroyed
> aggregate demand.
>
> I need to go now. As someone once said, "time and Tide wait for no
> man". But if you do post a reply, I will read it later.
Adam Anderson, an officer of the South Sea Company, is reported to have written in the aftermath of the South Sea bubble:
" It is hoped that the year 1720 ' .... may serve for a perpetual memento to the legislators and ministers of our own nation, never to leave it to the power of any, hereafter, to hoodwink mankind into so shameful and baneful an imposition on the credulity of the people, thereby diverted from their lawful industry' .."
By "lawful industry", I believe he meant applying their talents in the most productive way as judged by a free market economy, rather than the most profitable way set by a manipulated economy.
On Oct 07 11:04 AM a fat panda wrote:
> "I could go on, but when you start saying things like "low interest
> rates do not stimulate the real economy" then your thinking gets
> so far away from the "facts" and "evidence" that it is, to be frank,
> laughable."
>
> Harry, The problem with low interest rates is more than just the
> carry trade. It lowers the cost of risk, and encourages people who
> have no business owning a business to go into business. If you look
> at the house flippers, as an extreme example, they surely stimulated
> the economy, but did so by pushing demand forward and pulling resources
> away from productive uses. That is to say, that it creates a "real"
> economy that isn't real.
>
> The cost of this is much more than the loss in the house. The cost
> is going to be terrible once you factor in the retraining costs to
> get these 'business people' back in the workforce. People who left
> real jobs to become house flippers now have stale resumes. They are
> going to have to re-invent themselves. This can be a trival cost
> in some industries, but for people who work in say the IT world a
> year off is a killer.
The entire derivatives business used by the bankers with the OTC and CDS scripts was to remove 'risk' to a legendary place (someone else, of course) and thus claim they had the capital credit available to offer cheap loans that were even below the real rate of inflation.
This way, we saw over $12 trillion in new credit money created across the planet, money that should never have been lent. To fix the collapse of repaying these many loans (the 'someone else' guys couldn't pay up, of course) governments had to become these 'someone else' people and insure the dying loans!
This is bankrupting the major G7 countries. We are going bankrupt thanks to bailing out the bankers who made loans they couldn't guarantee, themselves. The transfer of the risk of lending was put onto untrustworthy organizations like AIG who had nearly zero capital.
I hereby declare Mr. Harry Long the winner.
Thank you, sir, for the lessons in economics.
Now take a break; the typos indicate you need one.
I'll spare y'all the personal stories of yore. Lou
Harry, it may have escaped your attention, but there is no inflation at the moment. Indeed, to the extent that we have experienced deflation, all wage earners HAVE had a real terms increase. We also happen to be living thru some of the worst economic times in living memory. That is why you can't get a wage increase. This doesn't change the data that I explained to you showing the reality of the last century and more covering all industrialized economies. Does it?? To repeat, the long term record shows wages rising faster than prices due to productivity gains.
If you plan on writing another article, you need to do a better job next time. Think thru your reasoning more carefully. Take a moment in private and look thru my comment 9 above this. That comment explained why you are mistaken. Don't reply again, just think to yourself. Then, when it comes to reader's comments; I think that it's great that you reply, but you should prepare your arguments more carefully and more logically.
Good luck.
On Oct 07 08:04 PM Harry Long wrote:
> Try to get a wage increase in this economy. If you think wages are
> increasing as fast as prices, you're delusional.
Gold prices are the best free market measure of inflation.
Again, Chap08, your rhetorical technique is to ignore evidence that I cite, and it is a disingenuous technique at that.
Chap08, my arguments square with the facts. Yours do not.
On Oct 08 06:40 AM chap08 wrote:
> Harry, is this the best that you can come up with?? To support your
> argument that inflation destroys demand you say: "Try to get a wage
> increase in this economy. If you think wages are increasing as fast
> as prices, you're delusional."??
>
> Harry, it may have escaped your attention, but there is no inflation
> at the moment. Indeed, to the extent that we have experienced deflation,
> all wage earners HAVE had a real terms increase. We also happen to
> be living thru some of the worst economic times in living memory.
> That is why you can't get a wage increase. This doesn't change the
> data that I explained to you showing the reality of the last century
> and more covering all industrialized economies. Does it?? To repeat,
> the long term record shows wages rising faster than prices due to
> productivity gains.
>
> If you plan on writing another article, you need to do a better job
> next time. Think thru your reasoning more carefully. Take a moment
> in private and look thru my comment 9 above this. That comment explained
> why you are mistaken. Don't reply again, just think to yourself.
> Then, when it comes to reader's comments; I think that it's great
> that you reply, but you should prepare your arguments more carefully
> and more logically.
>
> Good luck.
First, good article. Low interest rates do not always stimulate the local economy, and even when they do the cost can be high.
It’s true that low interest rates do encourage economic activity in the short run--somewhere. But the money borrowed will be invested where it appears to bring the best gain. Since weak economies are more likely to lower interest rates lower than stronger economies, the borrowed money will often go overseas. This is the carry trade. We saw it in Japan during the last decade or so, and we see it now in the US. It’s true that some money may be invested locally, and so there is some stimulus, but at a high cost.
One side effect of the carry trade is to lower the value of the lender nation’s currency. This happens as follows: investors borrow in the local currency, and then exchange it for foreign currency in order to buy foreign investments. The more the local currency drops the greater the value of the foreign investments and so the carry trade tends to accelerate, driving up asset values and driving down the local currency further. This can create a dramatic feed back loop, similar to what Soros describes in his theory of reflexivity as applied to asset/lending bubbles. Back to the point—the lowered local currency makes the local nation’s exports cheaper and does stimulate the export section of that economy. We saw this in Japan during its carry trade. There are costs of course—imports become more expensive, and foreigners become less interested in lending to the local nation—both factors that might push up interest rates and end the carry trade. The carry trade can also unwind if currency exchange rates change (due for example, to nations entering into the currency market—Japan buying US dollars for example), or if asset values fall. The carry trade can unwind very rapidly driving up the USD in the present case and driving down stock prices internationally.
So where do we go from here? I believe that the Fed can not raise interest rates until the unemployment rate stabilizes (and maybe until it actually declines in a decisive way). Thus, the USD will continue to fall, absent major intervention in the currency markets or a fall in world stock markets. The continued carry trade will be our last great bubble, driving up asset prices all over the world. However, as I or someone else said, “asset bubbles do not an economy make.” The falling dollar will make it difficult for other countries to export to the US. Whether they will develop their own consumer economies is an open question, but unlikely to happen in the next year or two. In the interim, there is massive money to be made as long as the carry trade continues to drive up asset prices. All of the talk about the economy recovering will be silly noise—ignore it. Dance if you dare while the music plays, and try to leave the party before the music stops. Thank you. Bill
On Oct 08 10:20 PM William Ramseyer wrote:
> Carry trade.
> First, good article. Low interest rates do not always stimulate the
> local economy, and even when they do the cost can be high.
> It’s true that low interest rates do encourage economic activity
> in the short run--somewhere. But the money borrowed will be invested
> where it appears to bring the best gain. Since weak economies are
> more likely to lower interest rates lower than stronger economies,
> the borrowed money will often go overseas. This is the carry trade.
> We saw it in Japan during the last decade or so, and we see it now
> in the US. It’s true that some money may be invested locally, and
> so there is some stimulus, but at a high cost.
> One side effect of the carry trade is to lower the value of the lender
> nation’s currency. This happens as follows: investors borrow in the
> local currency, and then exchange it for foreign currency in order
> to buy foreign investments. The more the local currency drops the
> greater the value of the foreign investments and so the carry trade
> tends to accelerate, driving up asset values and driving down the
> local currency further. This can create a dramatic feed back loop,
> similar to what Soros describes in his theory of reflexivity as applied
> to asset/lending bubbles. Back to the point—the lowered local currency
> makes the local nation’s exports cheaper and does stimulate the export
> section of that economy. We saw this in Japan during its carry trade.
> There are costs of course—imports become more expensive, and foreigners
> become less interested in lending to the local nation—both factors
> that might push up interest rates and end the carry trade. The carry
> trade can also unwind if currency exchange rates change (due for
> example, to nations entering into the currency market—Japan buying
> US dollars for example), or if asset values fall. The carry trade
> can unwind very rapidly driving up the USD in the present case and
> driving down stock prices internationally.
> So where do we go from here? I believe that the Fed can not raise
> interest rates until the unemployment rate stabilizes (and maybe
> until it actually declines in a decisive way). Thus, the USD will
> continue to fall, absent major intervention in the currency markets
> or a fall in world stock markets. The continued carry trade will
> be our last great bubble, driving up asset prices all over the world.
> However, as I or someone else said, “asset bubbles do not an economy
> make.” The falling dollar will make it difficult for other countries
> to export to the US. Whether they will develop their own consumer
> economies is an open question, but unlikely to happen in the next
> year or two. In the interim, there is massive money to be made as
> long as the carry trade continues to drive up asset prices. All of
> the talk about the economy recovering will be silly noise—ignore
> it. Dance if you dare while the music plays, and try to leave the
> party before the music stops. Thank you. Bill
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