Submitted by Bernie, Jan 16, 2008 14:54

What you are describing will be the replay of the period in U.S. Economic History from l974 to l984. We are now in an inflationary part of the cycle because the Federal Reserve is boosting the money supply. You can see this in the price of gold and the fall of the dollar. Probably the fall of the dollar will do some good by making our exports cheaper and our imports more expensive. This will dry up the current account deficit. Our surplus on the capital account deficit will decrease as foreigners find it more difficult to earn dollars. The push to drop interest rates will make investments more difficult as lenders of funds find that the decrease interest rates deprives them of a return that gives them a profit and compensates for the rate of inflation. As investment drops off the Federal Reserve will see the need to increase interest rates so that investors can get a good return. The increase in interest rates will then slow down the economy. So the cycle will begin again. We will boost the money supply to make credit more easily available and make the dollar more competitive on world markets. This process is known as stagflation or perhaps as the stop and go economy.

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