Deflation? and a loss of confidence.

http://www.japantimes.co.jp/cgi-bin/getarticle.pl5?nb20041016a6.htm

Japan is STILL struggling with deacde old problem of deflation, even as their interest rates sit at zero %. But of course, it CAN'T happen here in the U.S.

Inflation: too much money chasing too few goods.

Deflation: too little money chasing too many goods.

Wages stagnant, with increasing expenses (oil/gas, healthcare, housing) and low inflation, the increased costs of living are eating up any extra taken home form the tax cuts. Spending is mainly fueled by borrowing.

Global trade, and non stop consumption has built Asia into a trading manufacturing tiger. Can we say now, we have too few of anything? Could we say we have an abundance of capapcity? Is this why we have the weakest recovery of factory utilization rates of any recovery?

Those manufacturing jobs, and thier capital equipment expenditures will not be coming back, probably until the US dollar collapses, making us competitive with the other manufacturers. Also don't forget Indonisia and Viet Nam.

SO we are 70% consumer driven economy. We are mainly a Service Sector economy. Did I mention how service jobs are being outsourced to India and Pakastan? What is it then that we Americans do better and cheaper?

Every other war was followed by tax hikes to help pay for it, during $200 billion and counting for Iraq, we had a multi trillion $$$$$ tax cut. Why the pressure of our debt has not raised interest rates, I am not sure........if not a sign of our weak economy as a flight to safety play. Sentiment towards bonds is reaching 85%.....and area which should fuel a rise in rates, also it has come off its lower rising trendline. We shall see.

It is said the dollar could strengthen if deflation hit, because debtors will need dollars to repay debts. There will be new highs in bankruptcies, in loan defaults, home loans will go unpaid and houses will get reposessed.

According to TRaders Almanac, NO incumbant President has won election if the market is down .5% or more in OCT. (below 10,000). NO President has lost if market is up 3.3% or more in OCT. GW may be ahead in most polls, but not in this one. SEE if its right again.

Auto's and housing LEAD us out of Recession, with the last 2 years of buying and housing price escallation, I fear we are spent there.

I believe we are headed for a LONG period of credit contraction, and a much weaker economy than most predict. It will begin to show up in weakening consumer spending IMHO. It is already showing up in consumer confidence.http://biz.yahoo.com/c/e.html (briefing.com data)

Economic Calendar
Week of October 11, 2004


Duratek