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Pastimes : ClownBuck Deathwatch -- Ignore unavailable to you. Want to Upgrade?

To: patron_anejo_por_favor who wrote (90)	2/3/2001 9:54:33 AM
From: Tommaso	Read Replies (1) \| Respond to of 329

Because I think this time the rate cuts by the Fed are likely to weaken the dollar, I wish that discussion on this thread would revive. What seems to me to be happening is this: 1. Large increases in energy prices are having much the same effect as a sudden tax, removing discretionary income and also frightening people into spending less on other things. 2. Large increases in energy prices also eventually get passed along in all sorts of ways, raising other prices. This cuts down even more on spending. 3. The Fed sees clearly that this is happening, cuts interest rates very rapidly by a full point (I mean, they already have) and plans further cuts. The monetary base is also beginning to accelerate and MZM growth also. stls.frb.org stls.frb.org This acceleration has not even shown up yet in the 13-week figures, but it is under way. 4. This credit and monetary easing encourages inflation. 5. Now, if U.S. stock markets fail to respond as they did in late 1998 and in early 2000, Europeans and others may start to withdraw capital from the U. S. 6. The Euro has already risen significantly against the dollar, and falling markets plus a falling dollar could accelerate the capital flow away from the United States. 7. The only way to stop the dollar decline would be to raise interest rates. Everything else is working against the dollar: increasing inflation, decreasing economic activity, high energy prices, the horrendous trade deficits, huge dollar balances overseas, and so on. 8. The Fed will not stop on a dime and raise interest rates to defend the dollar. Instead, it is clearly intent on preventing a severe recession. 9. Nothing yet is being done to encourage true wealth creation in the United States by building new sources of energy. Nuclear power is in very bad repute and coal not much better. Natural gas supplies cannot be increased for several years and gas storage is heading towards empty. 10. The most likely result is for a few years, the worst of everything: rising prices, rising inflation, rising unemployment, a sinking dollar, energy shortages, decreasing tax revenues, and all the social costs of these things. Now I have great confidence in the United States if it will turn over the problems to the right scientists, engineers, and economists. But if politicians try to solve the problems, as they are doing in California, without confronting the physical realities beneath the economy, they will make a real mess of it. I think we are in for the economic equivalent of Vietnam.