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Strategies & Market Trends : The Epic American Credit and Bond Bubble Laboratory

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To: yard_man who wrote (6606)	1/31/2004 1:03:42 PM
From: russwinter	Read Replies (1) of 110194

<the implication of that output gap and that it isn't getting any better > Yesterday's papers and rear view mirror type stuff. Hoisington has an output gap chart from 2Q, 2003. I'd like to find an updated chart of this, but the CBO was indicating 3Q (also old news) was minus 0.5% or so. Of course capacity utilization is low, but I have to ask if it's real capacity? For example would a gas fired utility plant that breaks even at $4.00 natural gas (and where costs can't be passed on to consumers) be considered excess capacity? Maybe very loosely so, but not in the real world. The St. Loius Fed put out an article this month about using output gap as an inflation indicator. Here's the key excerpt, "There is no agreed upon method for calculating the value of potential output". My sentiments exactly, in fact I feel output can become obsolete very rapidly in an input inflationary spiral.

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