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

To: Zeev Hed who wrote (76777)	5/10/2001 4:00:36 PM
From: ahhaha	Read Replies (1) \| Respond to of 99985

The world wide capacity of making chips is about $250 B, this year production will be about $188 MM, that is the easiest part of excess capacity, however (a lot of the "decline is falling prices, not units). This use of the term, "capacity", which is similar to the way I used it with respect to the telcom industry, is different from the macroeconomic usage. Take the auto, chip, telcom, and all the rest of the industries, add up their utilized vs potential and you'll get a figure which isn't represented by the macroeconomic term. The difference is found in utilized vs utilizable. The ease of utilizing the apparent unutilized capacity in chips is different from the ease of using the same in autos. If it takes 100% per year M2 growth to bring the auto industry from 70% capacity to 100% capacity, is it realistic to claim that the auto industry is operating 30% below capacity? In contrast, it takes no extra money creation to raise the apparent chip utilization to 100%. It only takes the product cycle which is significantly independent of the economic cycle. Thus microeconomic states of capacity are not necessarily and often are inversely connected to macroeconomic states. To wit: In aluminum, O'neil had to strike a special deal with the Russians to reign in some of their capacity, and plants are closing all over the globe (might be good for those still producing here, but they prefer to sell the power they have contracted for long term rather than make aluminum <g>). But taxation policy doesn't appropriately discriminate between what is unutilizable, and therefore inefficient, and what is. It shouldn't be the government making those decisions, but government does when they favor arbitrarily one industry over another. Cutting taxes to stimulate final demand does exactly that. It stimulates the auto industry but not the telcom industry, and it doesn't stimulate the auto industry's efficiency, but it does enable them to raise prices. Capital formation tax cutting, say, by corporate income tax cut, does stimulate even the auto industry to improve the quality of product, but they can hardly raise prices if overall demand is unchanged. The tax cut money goes into quality rather than quantity. Final demand tax cutting is just squandered.