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Strategies & Market Trends : ahhaha's ahs -- Ignore unavailable to you. Want to Upgrade?

To: Keith Monahan who wrote (3260)	10/23/2001 3:02:14 PM
From: ahhaha	Read Replies (1) \| Respond to of 24758

The CPI rises while world growth slows. The slowing squeezes corporate margins, because the forces causing the CPI to rise, rising effective labor cost, aren't compensated by commensurate rising revenues. Loose monetary policy enables the illusion of prosperity to maintain demands for higher compensation while corporations have to continually downsize, change their mix, change strategies, change their businesses, in order to be able to swallow rising future costs. Declining corporate profitability drives money into risk avoidance, so more and more money enters into the liquidity trap. This is as close to deflation as world monetary authority will allow. It's the marginal unavailibality of money in rising risk classes rather than decline of total money supply that creates the same economic effects as deflation and has some consequences of deflation in the monetary sector. Please don't raise the issue of corporate pricing power. I answered that issue long ago. Recently Anna Schwartz claimed if FED kept interest rates low, then next year corporations would have pricing power. This is a mistaken view. If they raise prices, it will be because effective labor costs are rising so much that if they don't, they go broke. It may well be the case that return of weak growth will give people ideas that they have to catch up in the wage grab. Schwartz talks as though accommodation gives corporations voluntary power, but she forgets WinXXX productivity's superficial effects to supply at the margin. Labor demands cause involuntary price increases and WinXXX prevents voluntary increases.