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Strategies & Market Trends : Zeev's Turnips - No Politics -- Ignore unavailable to you. Want to Upgrade?

To: KyrosL who wrote (21505)	1/13/2002 2:34:22 PM
From: Zeev Hed	Read Replies (5) \| Respond to of 99280

Kyros, I agree with you that the ECB job is easier in containing inflation, but it makes the US fed's job so much more difficult in trying to "even out" potential economic dislocations. I know many here are critical of AG's management of interest rates and as a result the various money supply measures. I for one think he did what was necessary at the various junctions. In 1998, when the world was facing a melt down in southeast Asia, the US stepped into the breach to cushion that meltdown from becoming deep and leading to a worldwide recession. Result, too much money sloshing around and further pushing up a market that just two years earlier he termed as "Irrational exuberance". Late in 1999, in fear of a widely spread panic of financial systems "seizing", (the Y2K syndrome) he once more pushed the printing presses to full speed, and then after the danger passed, he felt he could start and reign in with additional tightening moves. The tightening moves were not what caused the deflation of the bubble, the excess money sloshing around from 1998 and late 1999 was, by its impact on misallocation of capital into excess capacity, coupled with two years of excessive budget surpluses in the US (those are really dangerous, IMTO). The question is what would have happened if he did not take those relaxing actions in 1998 and 1999 (and of course the most recent Jan 2001 to current easing cycle)? There was, IMTO, a "clear and present danger" in 1998 that the world economy would be brought to a screeching halt. The results of such an economic dislocation would have been harsh, immediate and devastating, possibly a very deep and lengthy recession here and in other parts of the world, possible depressions. Similar dangers were perceived to be present late in 1999. If the fed did not act then (risking the formation of the bubble), we could have been in much worst conditions now. What the fed is trying (and has for some time) is to engineer a middle road that will never get us to such extreme where the only resolution is financial calamity. I financial calamity such a period of negative growth in the 5% to 15% (still not a depression, but gosh, the pain that such would inflict) is worse even than inflation in the same range for few years. A depression in southeast Asia would have brought not only misery on those countries, but actual major social unrest and untold blood shed, IMTO. AG had no choice. With the Euro, periods like we had in mid 1998, 1999 and early in 2001 (and of course 9/11) can be responded efficiently only by the US, since the ECB hands are really tied up (in essence allowing about 2% or so growth in the Euro money supply). That will be a burden on the US, and eventually, I think that the US will pay a price for that generosity. Zeev