from: http://www.aci.net/kalliste/ Click Here: <A HREF="http://www.aci.net/kalliste/">The Home Page of J. Orlin Grabbe</A> ----- Federal Reserve The End of Gradualism by Paul Erdman SAN FRANCISCO (CBS.MW) -- Next week, the Federal Reserve will abandon its policy of gradualism in its effort to contain inflation. The potential for rising cost inflation stemming from the tightest labor market most of us have ever seen is now so great that the Fed can and must get aggressive. Granted, its policy of gradualism, raising the Federal funds rate five times in this cycle by the minimum 25 basis points, has so far worked brilliantly. Growth has remained amazingly robust, unemployment has sunk to 3.9 percent and inflation -- until very recently -- has remained under control. But the potential for rising cost inflation stemming from the tightest labor market most of us have ever seen is now so great that the Fed can and must get aggressive. The Fed is unique among the central banks of the Big Three in the world economy -- the other two world financial leaders are the European Union and Japan -- in that, as a result of our being in a full-employment economy, it has the freedom to practice classic monetary policy. The European Central Bank cannot because of continuing high unemployment in Europe. Germany is rejoicing today because there is new evidence that its unemployment rate is falling. It is also falling in France. What remain, however, are a 9.9 percent unemployment rate in Germany and a 10 percent jobless rate in France. There is no way that the central bank in Frankfurt could start to aggressively jack up interest rates under such conditions -- even though "classic" economic policy would require it to pre-empt rising imported inflation by raising interest rates to a level that would lead to capital inflows sufficient to revive the collapsed euro. Japan�s liquidity trap Japan is equally impotent where monetary policy is concerned. It is still caught in a liquidity trap where the supply of funds so exceeds demand that short-term interest rates are zero. There is not even a string to push on there. But with conditions as they are stateside, our Fed has a completely free hand. But hold on, you say. We have been told that Alan Greenspan is a gradualist. Oh yeah? Check his record. Big rate hikes are nothing new The last time Greenspan got really nasty was in 1994. At first, he applied gradualism, raising the Fed funds rate by 25 basis points three times during the first four months of that year. Then he opened fire. In May, the Fed hiked the rate by 50 basis points, in August another 50, followed by 75 basis points in November and, for good measure, another 50 in February of 1995. To be sure, the situation today is by no means as acute as it was then. And, I know, there's an election this fall. And, yes, the U.S. stock market is faltering. But the American people, as usual, have got it right: When asked in a recent poll what they thought would hurt them most, rising inflation or a falling stock market, rising inflation won hands down. Investors have good historical reasons to vote the same way. Time and time again, they have found out that low inflation is always good for stocks in the long run. CBS Market Watch, May 9, 2000 ----- Aloha, He'Ping, Om, Shalom, Salaam. Em Hotep, Peace Be, All My Relations. Omnia Bona Bonis, Adieu, Adios, Aloha. Amen. Roads End <A HREF="http://www.ctrl.org/">www.ctrl.org</A> DECLARATION & DISCLAIMER ========== CTRL is a discussion & informational exchange list. Proselytizing propagandic screeds are unwelcomed. Substance�not soap-boxing�please! These are sordid matters and 'conspiracy theory'�with its many half-truths, misdirections and outright frauds�is used politically by different groups with major and minor effects spread throughout the spectrum of time and thought. That being said, CTRL gives no endorsement to the validity of posts, and always suggests to readers; be wary of what you read. CTRL gives no credence to Holocaust denial and nazi's need not apply. Let us please be civil and as always, Caveat Lector. ======================================================================== Archives Available at: http://home.ease.lsoft.com/archives/CTRL.html <A HREF="http://home.ease.lsoft.com/archives/ctrl.html">Archives of [EMAIL PROTECTED]</A> http:[EMAIL PROTECTED]/ <A HREF="http:[EMAIL PROTECTED]/">ctrl</A> ======================================================================== To subscribe to Conspiracy Theory Research List[CTRL] send email: SUBSCRIBE CTRL [to:] [EMAIL PROTECTED] To UNsubscribe to Conspiracy Theory Research List[CTRL] send email: SIGNOFF CTRL [to:] [EMAIL PROTECTED] Om
