It now appears that Greenspan is going to have to keep raising rates....INDEFINITELY!
The paradox is that no one believes that the Fed knows what they're doing....hence rates keep falling......
OIL GOES UP...WHICH IS DOLLAR NEGATIVE.
BUT BONDS ALSO GO UP...WHICH IS DOLLAR POSITIVE.
What seems to be happening is that LIQUIDITY IS TRAPPED IN THE "PRODUCTIVE PART" OF THE ECONOMY.....WHILE THE "CONSUMER PART" IS BEING STARVED FOR LIQUIDITY BY LOW YIELDS AND LOW WAGES....
The result is that GOODS PRODUCERS HAVE LITTLE NEED FOR GREENSPAN'S MIGHTY HYPER-LIQUIDITY......AS THEY ALREADY HAVE A GLUT OF CAPACITY GLOBALLY....
SO SOME OF THAT LIQUIDITY IS SLOSHING INTO THE CONSUMER SECTOR AS MORE DEBT ESPECIALLY IN MORTGAGE AND CREDIT CARD DEBT....EVEN TO THE POINT OF CREATING THE WELL DOCUMENTED "REAL ESTATE BUBBLE."
NET NET?
Greenspan will have to raise rates MUCH higher than he would have, BUT FOR THE HYPER-LIQUIDITY ONE PERCENT SOLUTION OF THE LAST YEARS......
ESSENTIALLY, IT'S THE HYPER-LIQUIDITY TALKING IN THE BOND MARKET TODAY....THAT HAS CAUSED THE "CONUNDRUM" THE PARADOX AND THE ANOMALY IN BONDS.....
MOPPING UP GREENSPAN'S MESS COULD TAKE A WHILE.....AND THE DISTORTIONS AND DISEQUILIBRIUMS CAUSED BY IT...MIGHT TAKE YEARS TO WORK OUT.
