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Strategies & Market Trends : MDA - Market Direction Analysis -- Ignore unavailable to you. Want to Upgrade?

To: r.edwards who wrote (49818)	5/8/2000 5:45:00 PM
From: pater tenebrarum	Read Replies (2) \| Respond to of 99985

R. Edwards, the Fed Funds rate is however not part of the free market. it is funny that we trust a bunch of bureaucrats to 'know' what its correct level should be. my criticisms are actually aimed primarily at the Fed and what i regard contrary to popular opinion as its misguided policies. were rates allowed to truly float freely, the excessive credit demand would have pushed the Fed funds rate much higher already, invoking one of those self-regulatory mechanisms. if you look at the boom with a critical eye, you will realize that there WILL be a price to be paid. household debt stands at a record of 105% of disposable income, and corporate debt to equity ratios are at an all time high as well. so unless economic cycles have been repealed, there will be a price down the road. i agree that there are many positive developments in the economy that may have contributed to a smoothing of economic cycles. the application of modern technology and deregulation come to mind. however, i do not believe that it is possible to forgo savings in favor of consumption and speculation forever. one of the imbalances i frequently harp upon is the current account deficit, which is one of the results of the consumption binge. since it is growing much faster than the economy, a limit will surely be reached. leverage in the economy is excessive...and the Fed is responsible. neither credit nor asset market excesses are positive...the longer they remain uncorrected, the heavier they will weigh on the economy once it slows down. interestingly, the professed free marketeer Greenspan doesn't think interest rates should be left to the market. i agree btw. that the worker should get a larger slice of the pie. the way the economic spoils are distributed now, the gap between haves and have-nots is growing ever larger. this is one of the reasons why households can only keep up by sliding ever deeper into debt. it is one of the imbalances in need of being corrected. there is btw. a reason why stock market investments are not counted as savings by economists. the value of same is after all only defined by the last trade. it is impossible for everyone to actually cash those 'savings' in at the same time, or at the top tick. btw, re. wage inflation, when people are bumped to a higher salary level and at the same time their job title changes (though not necessarily their responsibilities) it is not captured in the wage inflation statistics. neither are stock options, which is probably just as well due to the uncertainties regarding their realizable value. i actually think it would be a mistake to include them in ECI calculations. anyway, i expect the trend toward higher wages to continue, and i don't think that's necessarily a bad thing. as for productivity growth, the way it is measured now it remains a bone of contention. admittedly it is a difficult thing to measure, but we should be able not to have to rely on the statistical artificiality of hedonic pricing. after all, if productivity growth is real, it should be measurable in 'real' instead of 'chained' dollars. regards, hb