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Strategies & Market Trends : Currencies and the Global Capital Markets
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To: Robert Douglas who wrote (500)8/28/1998 4:45:00 PM
From: Frodo Baxter  Read Replies (1) of 3536
 
Bob,

I have a question for you regarding fed funds and productivity.

Historically, the Fed cuts rates to stimulate the economy and raises 'em to curb inflationary excesses (the punchbowl theory of economics). But real inflation is negative to at most 2% right now, depending on how much of the CPI you think needs re-jiggering. Growth is slowing for sure. And now the irrational exuberance in equities has just been killed. So why shouldn't Greenspan cut rates aggressively (.5% now, .5% in 6 months) to align the dollar to market-based indicators like commodity prices, yield curve, and dollar exchange rate?

I know, I know... you're going to respond wage pressure. But look at the kind of jobs suffering the most wage pressure. Union blue collar jobs. Service jobs that add little value that can be obsoleted by technology. Labor really is losing to capital in our New Economy. Would you even notice if GM shipped half its labor force overseas? Or if your bank fired half its tellers and told you to use ATMs and the Internet? Or if your broker closes up shop because all his customers are using online discounters? Or your idiot travel agent???

No company can survive the intense competition of disinflationary, no-pricing-power, lean, tech-based economy that our beloved land has become by paying workers more than their productivity warrants.

Inflation is dead. Greenspan for President. Let's cut Fed funds. Now.
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