My Reply to Kaltbaum and David Jones view on inflation..
exchange2000.com
exchange2000.com
Haven't wages stayed flat to down? Wages are the primary culprit of inflation. You're
not going to knock down or regulate consumer price increases through Fed policy, only
the market will do that through supply demand. As world economies come back on line
there's going to be even more tenacious competition in production, driving down prices
further. The last thing we need here is a higher cost of capital to compete with foreign
cost structures.
If the Fed starts to turn the screws you'll see consumers increasing their spending to get
products before they go up in price.. that surge will later be interpreted as a need to
further tighten. That's the cycle we need to avoid, as it chokes off the overall level of
business activity in the mistaken belief that full employment and high capacity utilization
are inflationary in and of themselves. They're not.
We've had a liberal money supply pumping against last summers international defaults in
currency including Asia and Russia, and it will continue as policy through y2k bankrun
worries. This extra money pumped into the system to allow massive international dollar
liquidity has provided much of the foder to inflate the US stock market. Liquidity will
find a home of greatest appreciation. The stock market itself is the largest inflated asset,
not wages, or commodities.
Leverage is the greatest enemy of a market. When it works for you its great, when it
works against you it creates overnight bankruptsies. Raising interest rates will pressure
existing leveraged situations accelerating failures where they may have been worked out.
The better cure is to tighten up on all conditions of leverage, not the cost of money.
Send that off to Kaltbaum who's thinking, in my opinion, is out of the dark ages
especially where he says.. "They need to show that the Fed is ahead of the game, that
they're on top of things, not sitting idly by. Just a little tinkering to say, 'Hey, we're
standing by, making sure everything's OK."
That's like saying a police chief has to shoot someone in the community every once in
awhile just to let them know they have guns. |
