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To: patron_anejo_por_favor who wrote (224690)	3/1/2003 7:00:30 AM
From: MythMan	Read Replies (4) \| Respond to of 436258

Fed Official Defends Rate Cuts By EDMUND L. ANDREWS WASHINGTON, Feb. 28 — A top Federal Reserve official tonight provided the central bank's most extended defense yet against critics who have warned that its policy has fostered a bubble in housing prices and auto purchases that might pop as abruptly as the stock market bubble did nearly three years ago. "It makes sense to build the houses and cars now, when the cost of doing so is relatively low, rather than waiting," Donald L. Kohn, a Fed governor, said in remarks prepared for delivery tonight at a conference in San Francisco. Though acknowledging that housing prices have soared, largely because of the Fed's drastic reduction of interest rates, Mr. Kohn argued that neither the supply of housing nor home prices were "out of line with what might be expected." Mr. Kohn's remarks came on the heels of similar but more generalized comments by Alan Greenspan, the Fed chairman, with whom Mr. Kohn has close ties. Tonight, Mr. Kohn seemed intent on reassuring investors that a market meltdown was unlikely and also on rebutting criticism that the Fed's attempt to prop up a weak economy with low interest rates might be creating other problems down the road. The Fed has lowered interest rates 12 times over the last two years, bringing the federal funds rate on overnight loans between banks to 1.25 percent, the lowest level in 41 years. That policy has created a surge in the purchases and prices of homes as lower interest rates allowed people to borrow much more than they would otherwise be able to afford. It also helped shore up consumer spending, which has been the only real source of economic growth for some time as car companies offered zero percent financing deals and homeowners pulled cash out of their homes through home-equity loans. But at least some analysts have been worried that housing prices could be poised to crash, if only because they have been rising much faster than either inflation or personal income. Another worry is that both home-building and car production could stall badly once interest rates begin to climb back to more typical levels. Mr. Kohn acknowledged that higher interest rates could dampen the purchases of both houses and durable goods like cars and appliances, but he added that interest rates would head higher only in response to more buoyant economic growth. "The question is whether the stimulus to household investment, while cushioning the economic cycle in the near term, is setting the stage for greater instability in the longer run," Mr. Kohn said. The answer, he contended, is probably not. The boom in car sales, he said, has not required the construction of factories and has thus not led to overinvestment in machinery or equipment. And while acknowledging that the prices of existing homes have "skyrocketed" much faster than personal income in most markets, he said the lower interest rates had kept homeowners' monthly mortgage payments at manageable levels. "Although house prices outpaced income through much of the 1990's, housing remained quite affordable by historical standards," Mr. Kohn said. And while spending on houses and cars might well moderate in the future, he said, "they do not appear set to replicate the experience of fiber optic cable." Copyright 2003 The New York Times Company \| Privacy Policy

To: patron_anejo_por_favor who wrote (224690)	3/1/2003 2:58:51 PM
From: ild	Respond to of 436258

From Carl Swenlin WELCOME JOHN MAULDIN READERS John was kind enough to mention our site in his letter, and we would like you to give you a free peek at the core content. You can try the PRIME web site and the Decision Point Alert newsletter free for a few days using the following access codes: UserID: linear Password: trends RISING HEALTH CARE COSTS If you are not reading John Mauldin's free weekly column on www.2000wave.com you are missing out on some of the best perspective on the economy available anywhere. I personally consider it to be required reading. Last week John wrote about the rising cost of health care: It has nearly doubled in the last 10 years, and it is expected to nearly double again by 2012. I wrote the following in response to his article. * * * Regarding the rising cost of health care, certainly new drugs and technologies are part of the cause, but, then, I have to ask why it is that the cost of technology and products in other areas of the economy are not increasing at such an alarming rate, and are, in some cases, actually declining? I'm inclined to believe that it has more to do with the fact that the customer (patient) is not involved in negotiating price with the provider (medical facility). The insurance companies are interfering with the basic market forces that would tend to keep prices competitive. To the patient, the insurance company is the provider through which he gains access to the medical facility. To the provider the insurance company is the customer, and the patient a necessary inconvenience. The architecture is just plain screwed up. In December I spoke with a friend who processes insurance claims for a medical group. She described a conversation she had with her insurance company counterpart, the subject being how many treatments a patient should be receiving for a particular ailment. I noted that neither the patient nor the doctor was involved in this conversation -- just two accounting-types fighting over money. Insurance companies are increasing the cost of medical care, and at the same time undermining the quality. There is also the Socialistic nature of the health insurance system that guarantees that it will fail, as all Socialist programs must ultimately fail. About 30 years ago, when HMOs were just emerging, I remember reading an article about them. I thought, "Wow! For only a few hundred bucks a month you can get unlimited treatment for your whole family. Can this possibly work?" The answer, we now see, is no. Imagine that employers could provide a similar benefit for, say, Walmart. The employer pays Walmart a set amount per month, and the employee and his family can go to Walmart as often as they want, and carry out as much merchandise as they want, only paying a $10 co-pay at the door. How long do you think this would work? Five minutes? Granted, Walmart is a slightly bigger magnet than the local medical clinic, which is why it will take longer for the current medical insurance system to fall in a ditch, but fall it will, because the patient, the person driving the cost, isn't making decisions regarding cost. The patient is getting virtually free health care. Not to worry, though, the politicians will step in and give us Nationalized Health Care. Of course, this is just the insurance company version of health care without the profit motive as a deterrent to higher costs. And, with bureaucrats running the show, watch for the groundbreaking ceremony for the new Soilent Green Wing at your local hospital. Is there an alternative? Yes, but we have to begin with the concept that there is no free lunch. This is an irrevocable law of nature that must be accepted at the beginning of any program. Eventually somebody has to pay. If it appears to be free, you're not looking far enough down the pipeline -- there's an invoice down there somewhere. What I think might work is to shift medical insurance toward major medical coverage only. Begin with a large deductible for routine medical problems, and use medical insurance as protection against being wiped out financially by major illness. This is the way a lot of people, who are not covered by employers, are already dealing with it today. Fixing the tax code would help as well. One of the real inequities is that some people get tax free health coverage through their employers, while others must pay for their insurance and care with after-tax dollars. While I think that we can fix the health care system, I don't think we will, because big bullets will have to be bitten by too many people. It is easier to forego the hard choices and blissfully believe that this time the lunch will really be free. You know, like Social Security. decisionpoint.com

To: patron_anejo_por_favor who wrote (224690)	3/1/2003 7:03:38 PM
From: yard_man	Read Replies (1) \| Respond to of 436258

can you understand the logic of Comstock -- they are saying commodity inflation is not inflation (talking price inflation here -- not paper bills) -- yeah, this takes away money that could have been spent on durables, autos and bigger houses, etc. -- but houses don't count anyway and when it comes to inflation -- the kind that hurts the worst is the stuff we consume everyday -- fuel and food -- i guess they think the cost increases are temporary and will only squeeze the folks that transform the outputs -- I think that is nonsense -- they will raise prices and J2P will have to pay -- what marginal uses are going to come in enough to make a difference and can the adjustment happen fast enough? Methinks not ...