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Strategies & Market Trends : MARKET INDEX TECHNICAL ANALYSIS - MITA -- Ignore unavailable to you. Want to Upgrade?

To: J.T. who wrote (457)	8/7/1999 3:43:00 PM
From: j g cordes	Read Replies (1) \| Respond to of 19219

A Little Inflation is Good, Raising Rates is Wrong. Low unemployment and strong job growth are generating wage increases that could ignite inflation. That's the gist of the current worry bothering the market and policy setters. I content they're wrong this time to assume another rate increase, then perhaps another is the cure. Let me sketch a slightly different view of the economic system. I contend labor costs and the cost of money (interest rates) are on the same side of the equation. Increasing interest rates has the identical effect on the economy as giving everyone a raise. They are both inflationary, raising rates fans the fire from enjoying boom times to bust. While rate increases in the short run act as a swift brake on activity, in the long run they force higher prices to offset loss of profits. The supply side costs of production are tightened, fewer more dearly produced goods command higher prices in the market. Rate increases add to the carried debt load for credit cards, mortgages, notes and loans of every kind. The wisdom of raising rates is like trying to slow a car down by taking oil away from the engine until it seizes. Sure, the car eventually slows down, but everyone's out of work and in greater debt without a paycheck until the engine is torn down, repaired and brought back to life. There are other solutions to deal with bubbles in various asset groups. Raising rates isn't a cure. Markets should be scared because wealth, both to the government and to the country and its citizens, is lost in the process. Jim