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Strategies & Market Trends : Steve's Channelling Thread -- Ignore unavailable to you. Want to Upgrade?

To: Zeev Hed who wrote (8106)	11/22/2000 2:19:27 PM
From: Lee	Read Replies (1) \| Respond to of 30051

Zeev (OT), Awhile back you commented that Gore was the better choice for the macro economy because paying down debt would produce lower interest rates. It was a compelling argument that made a believer of me. However, my thoughts have started to change. What are your thoughts on the following? 1) The increase in the price of oil has trimmed consumption and .5%-1% of GDP growth. 2) The rise of the stock market increased consumption while lowering savings. The decline in the stock market will decrease consumption and savings will increase above the long-run average. Therefore the drop in consumption will trim 1.5%-3% of GDP growth. 3) Investment is lower due to lower expected growth rates and fewer investment dollars due to lower stock prices and less liquidity. Here we have a 1%-1.5% drop in GDP. 4) All of the above producers lower employment and lower consumption. This produces a good recipe for recession and lowers overall tax receipts while increasing payouts such as welfare and unemployment. A sharp 2-3 quarter recession occurring 2001 potentially into 2002 is likely. Now the stock market may or may not have factored this in. The question is what is the correct governmental response and who will provide it? If extra dollars... a) Pay down debt b) Increase gov discretionary spending c) Lower taxes Lets forget answer b because to increase government spending while suffering an external inflation shock leads to higher inflation expectations. I choose c because this will increase consumption and increase GDP. Paying down debt in a recessionary environment may not yield increased investment. Thoughts? Happy T Day, Lee