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Strategies & Market Trends : Booms, Busts, and Recoveries -- Ignore unavailable to you. Want to Upgrade?

To: elmatador who wrote (23136)	9/2/2002 9:22:26 PM
From: Maurice Winn	Read Replies (2) \| Respond to of 74559

DAK, what lowering interest rates can't do is force people to borrow. But plenty of Mindless Zombies will be borrowing flat out to buy houses, cars, trips, cyberphones and stuff. When interest rates go up again, as they will, there will be whining like fleets of Koreans from the Mindless Zombies who will blame Uncle Al for getting them in debt by encouraging a debt bubble without income to back it. Once again, they'll be fleeced. But, Uncle Al will be successful in his intention of keeping the economy burbling along and maintaining the value of the US$. The outcome will be no wealth effect [we don't hear much about the wealth effect these days], plenty of debt [leading to productive people going off to the mine singing "I owe, I owe, it's off to work I go" [to the tune of Snow White and the 7 Dwarfs], no inflation, no deflation, no drop in production and 6% unemployment. Sure, there will be little bits of inflation, deflation, unemployment, a small recession as economic adjustment from wealth effect purchasing continues, but no big shambles of depression, unemployment, inflation or deflationary collapse. It's not that the consumer market supports the US economy, the consumer market IS the US economy [in part anyway]. It's not a separate entity. The returns from the sharemarket are small compared with the overall economic activity, so shareholders shouldn't be expecting Uncle Al's interest rates to protect them. His main business is to interact with the vast financial transactions in the goods and services world and maintain the US$ as the pre-eminent tool for conducting those transactions. Cutting interest rates as much as he has done will induce plenty of people to borrow money to buy stuff. It already has done. Two and a half years into the poverty effect and things are going well. Wacko air marshalls, security and other aviation nonsense are putting people off flying, but other than that, things are going well. People are buying cyberphones flat out. Cyberspace continues to burgeon. Wealth-effect luxury spending has been put on hold. Mqurice