China's Basket of Currencies by Axel Merk

The U.S. economy has been driven by extracting cash out of ever more expensive assets; as demand for U.S. assets decrease, creditors may demand higher interest rates for their dollar holdings. The reduced demand for U.S. assets does not bode well for the frothy U.S. housing market. Greenspan has already forecast that the U.S. savings rate will increase - not because we are turning the U.S. into a nation of savers, but because equity extraction from homes will diminish (home equity extraction negatively influences the savings rate). While these adjustments are necessary and long overdue, we do not see that events will unfold without a fight. In Asia, we do not believe the intra-Asian consumption will be make up all of the reduced U.S. consumption; and in the U.S., policy makers over the past 20 years have been confirmed in their opinion that a supply side stimulus is the cure to all economic problems.

posted by SARTRE @ 7/27/2005 07:45:00 AM