Silicon Investor (SI) -- The First Internet Community

STOCKTALK

We've detected that you're using an ad content blocking browser plug-in or feature. Ads provide a critical source of revenue to the continued operation of Silicon Investor. We ask that you disable ad blocking while on Silicon Investor in the best interests of our community. If you are not using an ad blocker but are still receiving this message, make sure your browser's tracking protection is set to the 'standard' level.

Politics : Stockman Scott's Political Debate Porch -- Ignore unavailable to you. Want to Upgrade?

To: Jim Willie CB who wrote (9035)	11/8/2002 10:50:28 AM
From: stockman_scott	Respond to of 89467

U.S. Fed sounds warning on deflation Nightmare scenario now on radar screen, minutes show Jacqueline Thorpe Financial Post Friday, November 08, 2002 The U.S. Federal Reserve revealed yesterday it was becoming increasingly concerned that declining inflation would make it difficult for it to lower interest rates to jump-start a weak economy. While the Fed has made it clear during the past year that disinflation and deflation -- every central banker's nightmare and Japan's main problem -- were a topic of discussion for policymakers, minutes from their Sept. 24 meeting show it has now moved onto their radar screen. The minutes also help explain why the Fed administered a larger-than-expected 50-basis-point cut in interest rates on Wednesday, driving the Fed funds target down to 1.25%. "This is the first formal expression of some concern in that regard," said Stephen Roach, director of global economic analysis at Morgan Stanley in New York. "I'm totally on board with the fact that the greatest risks right now are deflation and not inflation and so I think the Fed did the right thing yesterday with this aggressive move." The Fed minutes said some observed that a significant decline in inflation from current levels could imply an unwelcome tightening of monetary policy in real terms. "In addition, further sizable disinflation that resulted in a nominal inflation rate near zero could create problems for the implementation of monetary policy through conventional means in the event of an adverse shock to the economy that called for negative real policy interest rates," the minutes said. Borrowing costs need to be lower than inflation in periods of slow growth so companies have a better chance of making a profit. In the last recession the Fed drove real rates -- borrowing costs adjusted for inflation -- as low as -1%, but the Fed will have run out of ammunition if it has to cut rates to zero and prices continue to fall. This is the problem Japan has run into as prices slumped across the economy and monetary policy has been rendered ineffective. Mark Chandler, senior economist at the Bank of Nova Scotia, agreed the Fed is increasingly focusing on deflation. "What was a very remote possibility in January is now on the radar screen," he said. "I still don't think it's their central case but it's something they're taking more interest in." The Fed first started to muse about the dangers of deflation in January when minutes revealed that members discussed the implications for policy if the economy were to deteriorate substantially, when interest rates were already at very low levels. Then in June the Fed put a major analysis of Japan's deflation on its Web site, concluding that it was best to move aggressively with hefty interest rate cuts before deflation could become entrenched. The Fed also revealed yesterday it was becoming increasingly worried about the commercial real estate market and a surge in consumer credit. "We are seeing dramatic increases in vacancy rates," Fed governor Susan Bies said. Overall, banks have less exposure to the slumping nonresidential housing sector than in past economic downturns, Ms. Bies said. But banks with assets of US$1-billion or less have a greater proportion of commercial real estate on their books than previously, she said, adding the central bank is also looking closely at delinquency rates for personal loans 12 to 24 months old. jthorpe@nationalpost.com © Copyright 2002 National Post nationalpost.com{4C0F7415-D726-441C-84C0-628206657226}

To: Jim Willie CB who wrote (9035)	11/8/2002 11:11:58 AM
From: Cactus Jack	Read Replies (2) \| Respond to of 89467

JW, So what are your golds these days? Still own Nova and Seabridge? Any others (i.e. Goldcorp)? We just closed our latest refinance yesterday on 30 year Jumbo fixed rate of 6 3/8. May as well take advantage of lower rates while they're here, but no way do we pull money out of the house. Debt is a killer. Interesting that the Fed held off last month on hiking rates 1/4 point (to avoid the appearance of playing politics -- what a joke), with just two members on board for that 1/4 point hike, then this month there is unanimity on a 50 b.p. hike. Interesting days. jpg