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To: applemac_g4
This decrease in demand will be reflected as a decreased demand for the dollar (a weaker dollar, imports becoming more expensive, and therefore inflation at home).

Not necessarily.

There's a real possibility of DEFLATION, as the consumer debt-service requirements begin to conflict with energy costs and the (demonstrated) gradual decline of average US private-industry weekly earnings.

So, for example, housing could see a price decline--which would have very significant effects on the banking system.

Since FannieMae and FreddieMac are already a bit precariously-balanced, it might not be fun to watch.

68 posted on 09/25/2004 7:06:23 AM PDT by ninenot (Minister of Membership, TomasTorquemadaGentlemen'sClub)
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To: ninenot

>So, for example, housing could see a price decline--which
>would have very significant effects on the banking system.

Housing is almost guaranteed to see a price decline as a result of the factors you state and what I see as higher interest rates down the road.

However, regardless of what consumer debt levels rise to, people cannot live without a certain baseline of products. As any visit to a local Wal-mart will tell you, more and more of these products are imported from overseas. And therefore the natural result of a weaker dollar is inflation...

...however, note that all inflation isn't caught by the CPI. For instance, when you go to the supermarket in 1980 and buy a 128 ounce bottle of detergent for $5.99 and go to the supermarket in 1990 and buy a 65 ounch bottle of the same detergent for $5.99, you have 100% inflation.

However, the CPI sees this as 0% inflation.


75 posted on 09/25/2004 7:56:27 AM PDT by applemac_g4 (Oderint dum metuat!)
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