European Stars and Stripes (Newspaper) - July 1, 1990, Darmstadt, Hesse                                Sunday july 1, 1990 the stars and stripes Page 17 j .1 business news Ted to Jolt buc German Mark should hit new highs v by Randy it Mcclain financial writer merging the economies of East Germany and West Germany May prove to be a financial Bonanza for East germans thing their first taste of capitalism but a. Service members probably wont remember the event fondly. That a because Many economists think monetary Union of East and West will end up lifting the West German Mark to record highs perhaps by years end and certainly before the end of 1991. A a trading Range of 1.50 to 1.55 Marks is definitely in the cards for the Dollar Over the next 12 months and it could fall even beyond that temporarily a said Mike Young the t Randy Mcclain european Market strategist with Merrill Lynch in London. A things Are looking More attractive for the Mark and less at Tractive for the  East Germany and West Germany will take the final step toward monetary Union sunday when East German citizens Start trading in their tired East Marks for a big helping of the More powerful Western variety. East German citizens depending on their age and employment status will be allowed to Exchange Between 2,000 and 6,000 East Narks each at a generous one for one Exchange rate. Additional East Mark savings can be swapped for Deutsch Marks at a two for one rate. Economists disagree about How quickly a unified Germany will Rise to become the chief economic Power of the world but most think such a Day is eventually coming. A Over the next three to five years the German Economy will become the strongest in the world said David Cocker an economist with chemical Bank in London. Cocker predicted great riches for West German businesses As they rebuild the rusted industries of the East. A investment opportunities in a unified Germany hold dramatic potential a added Young. A few sceptics maintained that the Cost of absorbing East Germany a moribund Economy into a larger whole might prove difficult at first and for a Brief period might even cause the Mark to dip lower. But a majority of economists seem to believe that West Germany a Bundesbank the country scentral Bank will take Swift action to drive the Dollar Down if it approaches 1.70 Marks at any Point. Right now the Buck is trading in the neighbourhood of 1.66 Marks on world markets. In the Long run Deutsch Mark fans said the West German currency is in for an extended Boom. The key to How fast and How far the Mark moves will have a lot to do with the rate of inflation in Germany and the direction of interest rates. Deutsch Mark bulls think Bundesbank officials will be Able to keep inflation under control through judicious interest rate increases Over the next 12 months while managing not to take the steam out of the country a economic expansion. That combination of events will boost the Mark. Quot in a bullish on the Mark a said economist Anthony Thomas with. Kleinwort Benson inc. In London. A i see a direct comparison with the Early 1980s in he a nixed states when president Reagan Cut taxes the . Government did a lot borrowing and Federal Reserve Board chairman Paul Volcker maintained a tight monetary  Thomas is belting that the bundles East germans this past week swamped Banks to fill out forms to qualify for converting their East Marks into Deustch Marks. Bank will be just As Lucky As Volcker in keeping inflation under control while managing not to raise interest rates so precipitously that West Germany a expansion into the East unravels under the High Cost of borrowing Money. The biggest question Mark in this Rosy scenario is whether East germans will a go on a buying Binge with their Giveaway Deutsch Marks said Cocker the chemical Bank economist. If the East germans do opt for a Good time Over frugality German inflation could skyrocket Here a Why monetary Union Between East and West Means there a going to be a lot More Deutsch Marks floating around in the United German Economy. The West German government is printing More Money and trucking it eastward. Already $15 billion Worth of Marks has been shipped into East Germany to finance sundays Cash Swap. Now if most or Alt of that Money goes chasing after Western consumer goods prices Are sure to increase As merchandise is bought Imp. That a the Law of Supply and demand. In recent months inflation in West Germany has been running at an annual rate Between 2.3 percent and 3 percent a Low by world standards Holland is the Only country in Europe with lower inflation a 2,2 percent annual rate. . Inflation is running at a stubborn 5 percent. Cocker said foreign currency traders will keep a close Eye on Germany. A if the annual inflation rate goes Over 4-percent, the Market May take that As a sign of trouble in Germany and attack the Mark Cocker said. A currency traders might turn to the Dollar As a Safe  under this scenario he said the Dollar might make some Short term gains during the next six months. A but it wont be dramatic Quot he said. Quot the most optimistic scenario would have the Dollar rising to 1.85  other economists snickered at that thought. A if it looks As if we re in for an extended period of Deutsch Mark weakness the Bundesbank is going to throw the Kitchen sink and anything else they be got Handy into the Market to protect their currency Quot Young said. A the Dollar May move Back to 1.70 Marks for a Short while but anything More than that will be met with a Swift  Young also does no to think East germans Are going to spend their newly found West Mark wealth frivolously. Instead he sees them saving it. East germans face the Prospect of massive unemployment As Many As 2 million layoffs in the months ahead As Western businesses try to streamline the former socialist nation Economy Young said. A East Germany is facing an Uncertain situation. Job Security is weak. And i think people will want a Buffer there. I Side with those who think the savings rate willbe relatively High a the Merrill Lynch analyst said. Thomas predicted that the Bundesbank will be Able to steer the German Economy through troubled Waters Over the next year. A the proof will be in the pudding and i look for the German Central Bank to play a much shrewder game in the months ahead Quot he said. The end result Thomas said will be the Dollar tumbling lower against the Mark. A i expect to see 1.50 Marks if not by year end certainly by next Spring Quot he said. Gold becomes a lacklustre investment new York apr you can to blame investors in Gold and other precious metals right now if they have trouble understanding Why the Federal Reserve is so worried about inflation. Traditionally Gold has been one of the most reliable ways to bet on inflation and thus protect the purchasing Power of Money from increases in the Cost of living. So by superficial logic at least the Price of Gold should be mirroring some of the same worries that have prompted the fed to stick with an inflation fighting strategy in its credit policies of late. Instead Gold has fallen to its lowest Levels in four years trading around $350 an ounce against slightly More than $400 just a few months ago and $875 an ounce at its Peak Price of Early 1980. After flourishing in the inflation Ridden 1970s, Gold turned in a lacklustre showing in the 80s As Confidence revived in competing paper investments such As stocks and Bonds. In the eyes of Many an analyst there is no immediate rebound in sight. A Given my optimistic inflation Outlook a says Heiko thimme at the Deutsche Bank capital corp a Wyo re a Gold will remain  time. Since Gold is an International commodity in an increasingly International Economy thimme Ana other observers note there is much More to the Story of its  and Downs than fluctuations in the . Inflation rate. In the past few months in particular it has been weighed Down by forces arising from major political changes in the two biggest Gold producing nations the soviet Union and South Africa. Also periodic Waves of Selling have been reported from saudi Arabia apparently prompted by a need for funds in Wake of sagging Oil revenues