The US economy is in trouble. Companies have no pricing power, and deflation is a real danger. Generally, when you are coming out of a speculative inflationary period, what you should be doing is to get rid of overcapacity in the economy. But that is not what the Fed is doing. For a while now, I have been posting that the Fed has been running the printing presses since 2000. But recently it has gone up by leaps and bounds. In the last few months, the M1 money supply has gone up at an anual rate of 30 percent. Greenspan is panicking - he has a mortal fear of the US turning into Japan, and he is willing to risk it all to keep the economy in a holding pattern until something (anything!) turns things around. The problem is that, while you can put money into the economy, you can't tell the money where to go. As with the previous times of easy money (like the very late 1990's), the money just goes to inflate prices and spur speculation in not-very-productive areas of the economy (stocks before, home prices now). Morgages now make up 30% of non-financial debt. Household debt relative to income is at a new high - 111%. Total household debt is now more than 80% of GDP. Ok, you might say we can support such high rates of loans because interest rates are low. But household debt service is close to all-time highs as well. The citizens of the US are living much better than they should be given their current economic output. You can't have a society based on doing re-fi's and buying goods from overseas forever. Will the Fed's delaying tactics work? Is there something on the horizon to save us (like cheap Iraqi oil)? Or are we on the Japan road? We have to wait and find out, but I'm not too optimistic. http://www.theglobeandmail.com/servlet/story/RTGAM.20030619.wbmath0619a/BNStory/Business/ http://www.morganstanley.com/GEFdata/digests/20030620-fri.html#anchor0