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Strategies & Market Trends : Mish's Global Economic Trend Analysis -- Ignore unavailable to you. Want to Upgrade?

To: Jim Willie CB who wrote (3965)	4/8/2004 4:39:38 PM
From: CalculatedRisk	Read Replies (2) \| Respond to of 116555

Jim, I think there might be a way out (call me an optimist). The first step is to tighten credit requirements. This will slow down some of the RE mania (zero down loans are an invitation for rational speculation; a classic moral hazard). At the same time, we should repeal the Bush tax cuts (at least the top end cuts). We will need this money to fiscally stimulate the economy as we ease off the monetary stimulation. The second step is to raise rates a little (as Roach has suggested, although I would do it in 50 to 75 bp point moves - not 200 bp at once). When this reaches the point of slowing inflation AND starts causing more job loss, I would stimulate demand with fiscal policy. It would be a tightrope act, but I think it is the rational approach to the current situation. Best to you.

To: Jim Willie CB who wrote (3965)	4/8/2004 4:57:57 PM
From: yard_man	Respond to of 116555

I think mish and other folks here think it is just too late ... Would raising rates be cathartic?? I think it would ... and we might get through the coming downturn a little faster if they would turn off the spigots -- But you know what will happen even if they did raise FFs -- carry trade gets unwound violently and then they'd be easing 6 months later and printing like crazy ... Also they would be accused of having it in for Bush .. There is really only ONE way out. Some financial calamity that brings on a total loss of confidence in the CBs -- heck, it is 99% their fault anway. Only way for sustained growth is to limit their powers.

To: Jim Willie CB who wrote (3965)	4/8/2004 5:27:42 PM
From: mishedlo	Read Replies (3) \| Respond to of 116555

because no alternative solution makes any sense either If no alternative looks any good, then the best thing to do is nothing IMO. Quite simply it is too late to do anything about the problem and huge spikes in interst rates would kill housing and a zillion trade jobs that go with it. Those are the ONLY good jobs we have outside of healthcare. The BEST solution is out of the FED's control. 1) reign in FNM 2) reign in govt spending 3) stop wasting money in this stupid war That is what really needs to be done - NOT raising interest rates. Quite literally 1/2 point would cause an instant SEVERE recession and possibly depression. 2 points or back to back 3/4 points as someone here suggested would do the same thing. Starting a depression to cure commodity inflation (most of which is not even being passed on) is quite literally assinine at this stage. Mish