At 05:27 PM 3/10/00 -0500, you wrote:
> With little evidence from the survey or other data that growth has
> slowed-despite four interest-rate increases since last June--the Fed is
> expected to raise rates again at a March 21 policy making meeting. The
> Fed wants slower growth to make sure inflation remains under control.
> ...(Washington Post, page E2)
What's interesting in press reports is that they never seem to mention the
fact that all else constant, a Fed rate hike later this month will cause
the dollar exchange rate to rise further. This means that one of the major
anti-inflationary forces unleashed will be a fall in US net exports, which
among other things raises US indebtedness to the rest of the world. The US
net international investment position is already at abysmal levels, perhaps
as bad as it's been since the numbers have been collected.
Also, if US interest rates rise, that raises the amount that the US has to
pay the rest of the world on the outstanding debt. This encourages the
deficit on the international income account to rise, which also encourages
US indebtedness to rise.
How long can the US increase its debt before faith in the dollar fails?
The question, of course, is whether or not Europe and Japan will also raise
interest rates.
Jim Devine [EMAIL PROTECTED] & http://liberalarts.lmu.edu/~jdevine
