SI
SI
discoversearch

We've detected that you're using an ad content blocking browser plug-in or feature. Ads provide a critical source of revenue to the continued operation of Silicon Investor.  We ask that you disable ad blocking while on Silicon Investor in the best interests of our community.  If you are not using an ad blocker but are still receiving this message, make sure your browser's tracking protection is set to the 'standard' level.
Strategies & Market Trends : Mish's Global Economic Trend Analysis
 Public ReplyPrvt ReplyMark as Last ReadFilePrevious 10Next 10PreviousNext  
To: Knighty Tin who wrote (10672)8/13/2004 5:01:35 PM
From: mishedlo  Read Replies (1) of 116555
 
Plunger on interest rates

Along with the trade issue we have inflation arising from commodity price appreciation from demand in Newly Industrialising Countries. This price action is causing the Fed to raise rates to counteract it.

Let's think about this. If there was general price appreciation driven by excess demand in the US then yes the Fed raising rates might be the right thing to bring back equilibrium.

But as the US becomes a smaller and smaller part of the world economy, the Fed is going to have to constrain US demand a lot more in effect offsetting the recent demand growth from NICs.

It seems to me firstly that this is nuts, the Fed won't crucify the US economy to save the global price of copper going up. Or oil.

Secondly, they won't be able to raise rates any more because of the debt-berg. Only servicing costs at today's interest rates are within historic bounds relative to incomes, the actual level of debt is enormous. Thus interest rates have to stay low.

If rates don't stay low, a vast swathe of the economy becomes stressed. It's OK the Fed squeezing marginal borrowers, but if you're in debt along with 60% of the population, you're OK because no-one gains if you're all forced to file bankruptcy.

So rates have to stay low and the US keeps buying stuff from abroad ... so the USD is losing value and the US economy shrinking relative to the world ... I reckon the USD becomes irrelevant quite soon which means people like me (foreigner holding USDs for the convenience) will move on. But to what I'm not sure.
Report TOU ViolationShare This Post
 Public ReplyPrvt ReplyMark as Last ReadFilePrevious 10Next 10PreviousNext  

HomeMailHotSubjectMarksPeopleMarksKeepersSettings
Terms Of UseContact UsCopyright/IP PolicyPrivacy PolicyAbout UsFAQAdvertise on SI
© 2026 Knight Sac Media.  Data provided by Twelve Data, Alpha Vantage, and CityFALCON News