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Reader Commentaries on The Big Financial Quake and More   (September 10, 2007)

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Excellent column today. However, I would like to add a point. Even if the fed funds rate is not raised, there is no compelling economic reason to expect the dollar to strengthen. Who wants to invest in the currency of a country having a massive overhang of debt, horrendously imbalanced real estate market, growing job losses (despite the misleading BLS employment statistics) and huge unbooked social services liabilities (think David Walker and the unbooked Social Security and Medicare balances).

Economists thinking that holding interest rates at current levels will lead to long-term dollar strength are ignoring the points mentioned above. The dollar SHOULD weaken as the economy begins the process of cleansing out the years of imbalances and unsustainable debt accumulation. My investments are going into economies that are growing, not receding. And with the contraction of the construction industry in the USA, there are few good reasons to believe that the near-term economic future of the USA is 'rosy'. JMO. Thanks for your excellent column. I get so much out of it.

I can't help but think we are in for it in 2008. Especially here in Florida. The good news, however, is I just closed on the sale of my home I've owned since 1999. I was on pins and needles for a month expecting the bottom to fall out of the mortgage market and blow up my transaction. Luckily, it held together just long enough. Now, I am 100% debt free and living well as a renter. It's a good feeling knowing that no matter what happens, I can weather any storm for a loooong time.

The key, I believe, will be allocating assets to hedge against the continuous devaluing of the USD. Last night, we went to a healthfood fastfood joint that we used to frequent regularly but hadn't been to in 4-5 months. A dinner for 5 used to run about $28. That same dinner (they did cut down on portion size) was $40! WTF!? It's getting crazy out there! Anyhow, this was just one example of the insidious creep of true inflation - not the crap the govt. spits out. We are in for interesting times. Keep your powder dry!
Edgar V.

I'm not sure whether you caught U.S. Treasury Secretary Henry Paulson on PBS's Nightly Business Report (Thursday, Sept 6th). I watched the interview and saw a man overcome by fear and uncertainty. Paulson's fearful voice inflections when attempting to contrive answers was disturbing. His demeanor communicated far more than his fumbling, stuttering and evasive non-answers ever could. He is petrified of this crisis and I felt embarrassed for him as I watched him. Below is the complete transcript (with my notes): The complete transcript here: www.pbs.org/nbr

SUSIE GHARIB: Thanks Jeff. Back now to our other top story. Treasury Secretary Henry Paulson believes the economy will withstand the turmoil in financial markets. But the market jitters are raising borrowing costs for companies and consumers. NIGHTLY BUSINESS REPORT Washington bureau chief Darren Gersh sat down with Paulson today and began by asking whether that will take a toll on growth.

PAULSON: There are real strains in the capital markets and across some of the credit markets. And I think this will take awhile to play out. And, you know, almost certainly, you know, over time this will have an impact on our economy. There will be a penalty to our economic growth. I'm still quite comfortable we're going to continue to grow, create jobs. We have a very strong economy against the backdrop of this -- of these stresses and strains in the capital markets.

NYT: Unexpected Loss of Jobs Raises Risk of Recession

DARREN GERSH, NIGHTLY BUSINESS REPORT CORRESPONDENT: Well, I have heard estimates that it could take as long as six months for the markets to sort of work through the stress right now and then another couple of years to work through the sub-prime mess. When you say awhile, define awhile for me, what does that mean?

PAULSON: Listen, I certainly wasn't predicting six months to work through the stresses and strains in the capital markets. It's going to be -- it is certainly going to be into the weeks, maybe a number of months. I have a difficult time making projections. But it will be awhile.

GERSH: The Fed agrees with you and says that the economy is doing pretty well right now. I think they call it moderate growth, doing well.


Edgar: He seemed relieved at being bailed out by the question. It only necessitated his agreement.

GERSH: And yet though we are projected to have two million homeowners facing foreclosure over the next two years. We haven't seen anything like that in almost two decades. How does the economy weather that?

PAULSON: Let's, again, let's just step back and look at this. Now there have been estimates that -- that two million mortgages will reset. That doesn't mean that there is going to be two million workouts or two million foreclosures, OK. So there is -- this is an issue we're taking seriously. And we're working very hard to do everything we can to help those homeowners that are going to be facing difficulties and have the capabilities to own their home, to continue to own their home. We're not working to keep speculators in the home, people where it is not their primary residence.

GERSH: But what sustains the economy and the economic growth that you see, we see people, residential construction going down, people not taking money out of their homes because that propped up the economy for years.

PAULSON: Well, first of all, outside of the U.S., this is the strongest economy that many of us have seen in our business lifetime. And right now we're benefiting from that in the U.S. For a long time, we were the engine of growth for the world. Now experts are growing much more quickly than imports. That is helping us. We have an economy that is creating jobs every month, raising the standard of living.

Economic Policy Institute: What's Up? Not Income or Earnings

GERSH: Let me ask you about what some traders and analysts are telling me is going on in the markets right now. There's something called the London interbank offer rate, libor which they say has spiked up recently out of historical norms.


GERSH: And they take it as a signal that, of stress in the markets, that banks don't want to lend to each other and that it is a lack of confidence in the markets, especially among the big banks. Do you read anything into that?

PAULSON: Well, I would say that's one thing you can read into it. I would say that there are many of other signs of stresses and strains in the market. I think what is going on here is a reassessment of risk. We had had benign economic conditions for some time. It is not at all unusual in our economy for there to be periods of stress and strain.

CNN: Number of Homes Entering Foreclosure at Record High

Bloomberg: Canadian Banks Commercial Paper Premiums Hit Record

FT.com: Dollar Falls to Within 1 Cent of its Record Low Against the Euro

GERSH: Have investors learned their lesson? Are they expecting the Fed to bail them out?

PAULSON: Well, I would say, you know what, investors may learn their lesson. And then they've got a relatively short memory. And so again, it seems, if you look at economic history, they learn their lesson every seven, eight, 10 years or what have you. But again, remember, that we have the most innovative capital markets in the world. There has been real innovation. There's been innovation in terms of securitization of credit. Now that, Darren, has made credit accessible to many Americans where it wouldn't have been accessible. It's made it accessible at lower rates of - - at lower rates of interest. That has had big advantages and it poses challenges.

Edgar: He is all over the place here fumbling and skidding around the question. How can something have "big advantages" and also "pose challenges"?

Reuters: Investors Urging Banks to be Less Secretive About their Securitized and Off-Balance-Sheet Assets

GERSH: Well, one of those challenges is that people tell me that the risk has sort of been sliced and diced. It's been spread all over is the good you news. But the bad news is it's been spread all over and nobody knows where it is, how much it is and it worries everybody. Is there a regulatory change that needs to be done?

PAULSON: Let me say first of all, you described that very well, OK. It's been spread all over and the challenges coming from that are twofold. First of all, the complexity and second of all we're much more integrated into the global markets than we were eight or 10 years ago. And so that means it will take longer to work -- work this through the system.

Edgar: Guat do ju tolking about? Me no undarstand ju. Maybe is my English? You truly have to watch this on screen to appreciate what a totally inept answer this was. As bad as it reads on the transcript, it's a 'beaut' compared to watching it on film.

GERSH: Secretary Paulson, thank you for your time.

PAULSON: Thank you.

Thank you, readers, for your experiences and informative links.

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