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Strategies & Market Trends : Trend Setters and Range Riders

MSFT 479.20

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Jan 9 3:59 PM EST

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To: kendall harmon who wrote (2974)	9/23/2001 9:55:24 AM
From: Doug Robinson	Read Replies (1) of 26752

It should be interesting to see if the current economic philosophy will work. During the past century new economic schools of thought were born and implemented when the accepted policies and thoughts didn't work at very important points in the economy and the stock market. For several centuries the laissez-faire policy of classical economics got us through some very horrific depressions. The thought that one should wait them out worked but the time required and the impact during these periods was horrible. Hoover used the accepted format, hoping that his actions to balance the budget would be successful. In the long run it had worked before but this time it didn't. Keynes' (Keynesian Economics) famous saying "in the long run your dead" rang true and his policies were implemented by Frankie D. in the "New Deal". That killed the laissez-faire approach and became the policy of choice until LBJ embarked on his "guns and butter" program. Up until the early '70s economists didn't think stagflation could exist. In the early '60's Kennedy's economic advisor, Heller (a Keynesian), felt that fine tuning the economy was the answer to problems at the time and the tax-cut implemented after Kennedy's death provided a great fiscal stimulus and great wealth in the stock market was to be made. Unfortunately this stimulus sewed the seeds for stagflation. Demand-push inflation followed as too much money chased too few goods. The cost-push inflation problem followed when the Middle Eastern countries cut off the oil and droughts occurred all over the world. Nixon's wage and price controls had worked temporarily but when ended, inflation and unemployment both rocketed higher. Stagflation was the worst of all worlds - inflation and unemployment rising together and the '73-'74 recession confirmed it. Onto the scene came Friedman and his monetarist program. Volcker embraced the philosophy and strangled the economy by raising rates by contracting the money supply. It worked but the medicine was a bitter pill to swallow for many. Then came Reagan and the new "supply side economics". These dismal scientists didn't believe that a tax cut would stimulate inflation. People couldn't have heard better news and Reagan implemented the program when he was voted in. It worked very well but it didn't live up to it's expectation that it would reduce the budget deficit. It actually fueled it's growth and it soared upwards. Father Bush had new ideas being whispered in his ears by the current school of thinkers (Greenspan). This group's thoughts were based on "rational expectations." Bush's failure to quickly implement the ideas cost him the election. Clinton embraced the program and the 90's became one of the greatest periods of accumulating wealth that we have seen in many years. Will this economic philosophy work in the current environment? The rapid response was required if this is to work but the question remains will it? Until such time that it proves to be working I believe it's best to be in cash.

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