Alan Green$pan cut interest rates all through 1991 and into 1992, 0.25% at a time, month after month. Now they have gone at twice the rate downwards, 0.5% at a time, with 1% just in January. I suppose the increased rate is because of Internet time so everything is done faster. I'd have been surprised to see any upturn in business activity already, only 6 months into the cuts and especially following a rapid increase and stunning crunch of irrational exuberance.
Cutting rates will put wealth [borrowing power] into my pocket and I have planned for just this event for 4 years. My interest outgoings have been dramatically reduced, so now, the P:E ratios look more attractive than when my interest rate was 8.5%. That must also be the case for people with money on term deposit. My big problem is that Globalstar crashed and burned, both literally and financially, so my buying power has imploded faster than the dot.bomb.
Cutting rates will cut corporate costs [which doesn't much help the likes of Nortel and Lucent who are taking huge losses].
I thought it fair enough to raise rates - the economy had been going absurdly fast, based to a large extent on increasing debt. That needed to be stopped. Increasing interest rates slows people down. There had been irrational exuberance in the Nasdaq.
What I'm trying to guess now is whether, as planned, things will just steadily stabilize and things will go back to 'normal'. Or, as the doomsters in the Financial Collapse world siliconinvestor.com claim, we are just entering the realm of serious trouble.
I think a steadying, no worldwide financial disaster [though plenty of asset liquidations and change of owners are likely] and then 'back to normal'. No deflationary collapse, despite Japan's wobbles, as countries have mutual devaluations, money printings and interest rate cuts.
There is more talk of inflation than deflation in the USA context, which is still a very big context compared with the rest of the world.
Sure, there are deflationary forces, but aren't they too weak to overcome Alan's money tree? This is an actual question - I am guessing and have no idea really. We have had 15 months of falling stocks and 6 months of stabilizing interest rate cuts. That's slow enough to avoid pandemonium and to allow adjustment, closing of over-margined investors' accounts without a cascading collapse.
So far, so good, I think.
Mqurice |
