Wednesday, March 30, 2005

Safe Haven | Even Stephen Roach Has It Wrong

Safe Haven Even Stephen Roach Has It Wrong

It is not just the technicians and the stock pickers who are negative. Economist are writing negative articles and the big media are ready to "report the news". The above article screams about the "looming economic danger". It tries to make the case that the Chinese would somehow be better off if they were not selling their goods to Americans; how ridiculous can one get?

The standard of living in China has been soaring for the past several years. It is free trade that is benefiting them and us. This is the classic case of the orange gower benefiting by trading some of his oranges for wheat. Both growers enjoy oranges and wheat.

Bears are piling on from all directions; don't be fooled. The good news is being ignored. The use of monetary and fiscal policies to "prime the pump" has worked exactly as one would hope. The economy is now so strong that interest rates are being allowed to return to market levels. With productivity and free trade holding down inflation, there is already evidence that rates are again near equilibrium levels.

Even the bad news is a bump in the PCED to 2.3 from 2.0. A 2.3% inflation rate is a good thing! Are any of you old enough to remember the 18% inflation rates of the late 70's? Bond rates continue to fluctuate around 4.5% and GNP is only slightly lower than 4%; Stephen Roach and his friends apparently can't see the forest for the trees. Good times are here!