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Politics : Ask Michael Burke -- Ignore unavailable to you. Want to Upgrade?

To: Mike M2 who wrote (82793)	8/9/2000 2:13:16 PM
From: Don Lloyd	Respond to of 132070

mike - Thanks. mises.org "...As Dr. Frank Shostak points out, the Fed began a three-year long expansion in 1996: "After falling to a yearly growth of 1.6% in May 1996 the yearly rate of growth in the money base climbed to 15.2% by December last year." Meanwhile, the interest on the 30-year Treasury bond dropped from a high of over 7% to a low of 5%. The stock markets soared, especially the stocks of Internet startups. The "tech heavy" NASDAQ composite went from just over 1000 to 5132 during this period, rising over 80% in 1999 alone. Buoyed by the stellar stock market returns, consumers built massive additions to their houses, and took trips they otherwise would not have taken. Real estate, especially in the "dot-com areas" such as Silicon Valley and New York City, soared in price. However, the Fed knows that such a boom cannot be sustained indefinitely without leading to ever-increasing rates of inflation. Last year, the Fed began raising interest rates to check the progress of the boom. As the Fed's actions began to take effect, the malinvestments of the boom period began to be revealed. Internet startups shut down for lack of funds. The stocks of other high tech companies crashed -- Amazon.com from a high of 113 to a current 30, Qualcomm from a high of 200 to 62, Red Hat from a high of 151 to a low of 18. Peter Eavis of TheStreet.com reports: "In the past month, Chicago’s Bank One and Charlotte’s First Union, among the nation’s largest banks, have reported billions of dollars in losses as they repair missteps, all committed in this boom." Meanwhile, all around my town I see large construction projects abandoned after being only 10 or 20% completed. James Cramer, writing in the June 26th New York Magazine, hit the nail on the head with his diagnosis of the downturn: The Federal Reserve, in its desire to stomp inflation, has raised rates to the point where business is faltering throughout the country… That means that many companies that had been thinking we were in for boom times have simply gotten it wrong...." Regards, Don