I agree completely that the Fed is in a bind. The (US) economy isn't
looking too good. I read that the last estimate of 2% for first quarter
growth will have to be revised downward due to the very recent negative
productivity numbers. The Fed can lower interest rates a little bit,
but there are probably diminishing marginal returns in doing so. You
agree with me that the dollar could lose value relative to the Euro and
the Yen at some low US interest rate level, not yet reached.
I heard a BBC report last night that there is an enormous amount of
francs hidden under mattresses in France. They were hidden to avoid
steep taxes. Soon, when the euro becomes a paper and coin currency,
francs and other old currencies will become valueless. Thus, there is a
need to spend all that money. Extrapolating the same situation to all
of Europe, that might provide Europe a shot in the arm. I also heard
though that the reason for the euro's weakness is that a lot of people
in the central and east european economies are switching from euros to
dollars and swiss francs. This might be a temporary phenomenon only. If
it is temporary, the euro could gain parity with the dollar.
The really important number is US GDP growth. If it doesn't dip into
negative territory this year, a lot of the bad credit cases might get
washed out, and the Fed might achieve that soft landing despite its
incompetency. If will be tight. If things start to go wrong, a snowball
effect could do a lot of economic harm.
One thing to look at this year is Microsoft Windows XP, the new
operating system version. If it forces a lot of hardware and software
upgrades, that will help the economy quite a bit. It's scheduled for a
third quarter release, but Microsoft has a tendency to miss its
deadlines. I guess Bluetooth technologies might not have an impact in
2001, but I feel that they will make a move in 2002 and 2003.
Although I've been pretty pessimistic over the last two years, I'm
becoming less so. The technological outlook is getting much more
interesting over the next 5 to 10 years. There are some new,
interesting ideas on the horizon.
Andrew Hagen
[EMAIL PROTECTED]
On Mon, 21 May 2001 18:39:43 +0000, Rob Schaap wrote:
>G'day Andrew,
>
>You wrote:
>
>> Although the bublble has been pricked, the economy underneath has
>> still
>> grown in real terms. What we need now are more labor saving
>> inventions.
>> We'll soon have them in the form of further technological innovation,
>> I
>> feel. A prediction: Bluetooth wireless systems are going to be
>> absolutely huge within 2 years.
>>
>> Is the US credit system heading for disaster? It's not clear how that
>> will happen. As for the oncoming real estate crisis, I haven't heard
>> about that before.
>>
>> Finally, you criticize the Fed. I disagree with your assessment. The
>> Fed was far too tough on inflation in 1999 and 2000. It should have
>> kept interest rates steady or lowered them, not raised them. There
>> were no signs of inflation. The economic slowdown exists because the > Fed kept
>rates too high, not because they kept them too low.
>
>Well, my main point about the Fed was that it hasn't quite the room for
>manoeuvre with which people seem to credit it. It either reacts, in which
>case it can be too late (given the time rate manipulation can take to hit
>home, never mind the mediations that can undo the hit) or it predicts (in
>which case it can get it hopelessly wrong). If it makes its job a bit easier
>by choosing one priority (to keep the finance sector as stable as possible
>while it creates credit at unprecedented rates without recourse to trends in
>the real economy), then its efforts there can create stress elsewhere (eg
>encouraging residential debt whilst residential incomes are flattening out),
>and the more it does that, the harder it becomes to anything else.
>
>In its call for more rate cuts, Morgan Stanley
><http://www.morganstanley.com/GEFdata/digests/20010402-mon.html> cites profit
>squeezes, flattening productivity numbers and concomitant downturns in
>employment and household income. They might also have mentioned the
>unprecedented debt levels associated with all these massive takeovers we're
>seeing (our largest miner, BHP, was effectively taken over yesterday by a much
>smaller Brit-based company, for instance), many by way of LBOs, and the
>proliferation of dodgy junk bonds held by funds, investment banks, and
>insurance companies (our second largest insurer, HIH, went under last week to
>the tune of at least $4 billion and gawd-knows-what knock-on effects). Big
>debt means chasing the short-term dollar at the expense of stuff like
>retooling, R&D, keeping corporate knowledge in the family, paying wages in
>line with productivity, etc etc, too.
>
>AFL-CIO President Lane Kirkland is on to this: "By any measure, the country as
>a whole, and working people in particular, are paying a wholly unacceptable
>price to the financial manipulators.who arrange highly speculative, highly
>leveraged takeover deals." Which is morally outrageous of course, but also
>systemically dangerous while those workers are encouraged to borrow to buy
>foreign consumer goodies at a rate which leaves their earning projections for
>dead. Finance capital sacks 'em whilst finance capital entices 'em to greater
>debt! None of which could happen if the Fed wasn't helping finance
>capitalists do that.
>
>Greenspan himself has the occasional moan about this (got this from Doug's
>site): "It is very difficult to judge at what point debt service costs become
>unduly burdensome and can no longer be
>sustained. There is no evidence at this point that markets are disinclined to
>readily finance our foreign net imbalance. But the arithmetic of foreign debt
>accumulation and compounding interest costs does indicate somewhere in the
>future that, unless reversed, our growing international imbalances are apt to
>create significant problems for our economy." But what can the bloke do?
>Crash the markets, expel all those Yen and Euros, and bankrupt half the
>country? Maybe he's gone so far down this road he can't kill his own
>Frankenstein ...
>
>And they are talking up Bluetooth-type technologies for all they're worth, but
>just what the capital costs (and debt is retarding capital investment at the
>moment) versus productivity benefits of those is, nobody knows. And if the
>bulls are right, and we're passing the fire-sale inventory clearance stage,
>well, then won't they're be upward pressure on US prices? And if Japanese
>money returns home to plug exposed bad debts, won't the dollar drop, and won't
>that invite inflation re all those foreign goodies?
>
>I know that's a lot of 'ifs', but the US finance system in general, and the
>Fed in particular, are not equipped to handle any of this, are they?
>
>Yours,
>a bear of very little brain who finds all these data confusing.
>
>
