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Strategies & Market Trends : The Epic American Credit and Bond Bubble Laboratory -- Ignore unavailable to you. Want to Upgrade?

To: russwinter who wrote (10143)	3/15/2004 12:06:54 PM
From: ild	Read Replies (2) \| Respond to of 110194

Currencies: Jobs, the ‘K/L Model’, and the Dollar Stephen L. Jen (London) There are no jobs because interest rates are too low. Why is the US having so much difficulty generating jobs? I argue that the super-low interest rate stance in the US has had an unintended effect of skewing the incentives in favour of firms expanding capital rather than labour. The irony here is that, as long as interest rates stay low, the job market will struggle to recover, with labour being crowded out by capital. This causality is precisely the opposite of the conventional thought process, that as long as the job market is weak, the Fed cannot raise interest rates. The net impact on the US dollar (USD), in the long run, should be positive. However, in the short run, as investors misinterpret the reason behind the joblessness in the US, they may try to sell the dollar every time they are disappointed by a weak labour report. morganstanley.com