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Strategies & Market Trends : MDA - Market Direction Analysis

SPY 675.02

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Nov 25 4:00 PM EST

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To: Casaubon who wrote (20952)	7/24/1999 11:29:00 AM
From: TimbaBear	Read Replies (2) of 99985

In response to your post, IMO what would serve to drive down interest rates the most is more supply (and I don't mean printing more money)....if you view interest rates as the cost of money, then the more supply, the lower the cost....how that applies to this situation is: If the Government uses its "surplus" to pay down debt, then it doesn't have to borrow as much from the private sector which means the private sector has more supply that they have to find other sources to sell to and that puts them in competition with the other sources of supply already selling money in those sectors and this will drive down the cost of money (interest rates) for all of us until supply and demand reach equilibrium again. Tax cuts reduce the amount of money available for debt reduction and therefore increase the amount of money the government has to borrow, thereby reducing the amount of money available for the private sector to borrow thereby keeping interest rates higher. The Budget Office (OMB) probably sees that this tax bill is no more than a ploy by the Republicans (who already know it will be vetoed and probably wouldn't have passed it if they thought it would go through) just so that they can have a campaign issue that says something like "The Democrats don't want the people to get back their hard earned money" or some such tripe. I don't happen to think that inflation is as big a threat as this spending spree that the politicos want to go on. The fear of wage pressures is largely overblown....how's that for a radical statement!....here's my reasoning....1). Wages in the past (in this country) were able to rise rapidly in good times because of widespread Union participation of the workforce....that is dramatically less of an influence now; 2). US Corporations have shown that they will exploit cheap foreign labor sources whenever they feel they must and there is still a lot of cheap labor available in the world; 3) Skilled labor is being courted by stock options rather than by higher wages. 4) Inflationary forces have been low enough that the average person doesn't feel the absolute need for higher income just to stay even with the cost of living. 5) Productivity mobility technology has allowed people to be more flexible in where they conduct business and that helps foster the feeling of "I've got it pretty good here, why should I rock the boat?" It is definitely a new era, but I don't say that because I think the laws of economics have been repealed... I say it because the "laws" of economics were based on poorly understood situational events (like the effect of Unionized labor vs. todays wage environment) and this economic environment is giving the economists another opportunity to "get it right"

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