Silicon Investor (SI) -- The First Internet Community

STOCKTALK

We've detected that you're using an ad content blocking browser plug-in or feature. Ads provide a critical source of revenue to the continued operation of Silicon Investor. We ask that you disable ad blocking while on Silicon Investor in the best interests of our community. If you are not using an ad blocker but are still receiving this message, make sure your browser's tracking protection is set to the 'standard' level.

Pastimes : Clown-Free Zone... sorry, no clowns allowed -- Ignore unavailable to you. Want to Upgrade?

To: LLCF who wrote (37285)	11/14/2000 1:37:40 PM
From: GraceZ	Read Replies (2) \| Respond to of 436258

Here's what a friend wrote to me on this subject and I'm inclined to agree: If the Euro continues down even slowly which is likely, the pressure on FED rises substantially to at least nominally lower rates. Europe is less efficient than we are because of tax rates and other structural factors like strangulating and arbitrary labor and environmental laws. At the same time Europe has an average interest rate around 4% where ours is equivalently 6.5%. So would you prefer European investments or American? Remember what I said about what country maxes out on the product of interest rates and marginal efficiency of capital on the BAY thread? Europe isn't inclined to improve their efficiency because they are prejudiced by their socialist mandates. We aren't inclined to lower our productivity or efficiency in order to help Europe, so either Europe must raise rates substantially or we must lower them. If Europe raises rates, it's murder on inefficient relatively high cost producers, and would likely send Europe into a significant down turn. The oil thing made everyone sensitive to this factor because it took away the slack. It was a form of raising rates, but it also hit us, so the net was zilch between the two. Another concern is that American multinationals like IBM have substantial exposure to Europe. Earnings will decline if Europe recesses. The only way that FED can cool the advance of the dollar that would make any impact would be to lower our rates. The free market in money already has indicated that that is what is appropriate. FED is making another blunder by not lowering. They don't have to lower much. 25 basis points would be a good way to restore some confidence in the Euro. Direct intervention will not work. FED knows that. They have to do something material. Here's the BAY post he refers to if you are interested: Message 14604110 The evidence for this undeniable reality is what the dollar is doing. For a myriad of reasons the world's capital is flowing into the dollar in ever greater intensity. One could say that the product of real interest rates and marginal efficiency of capital in the US is greater than in any other country by a factor order as the reason for this tidal wave. Thus foreign economies must raise interest rates and lower taxes or the US must do the opposite to reverse this special kind of deflation (the deflation of socialism). The US is highly unlikely to do that because the FED agrees with Hans Teitmeyer when it comes to relative monetary policy and Americans want lower taxes.