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

To: Silver Super Bull who wrote (12318)	4/21/2004 1:37:28 PM
From: Gemlaoshi	Read Replies (1) \| Respond to of 110194

Deadbull, Stephen Roach wrote an excellent article on this subject within the past week. The abbreviated version: classical economics holds that only productive constraints force the producer prices (PPI) to increase. With no apparent labor constraints (plenty of available workers) and no capacity constraints (capacity utilization still <80%), there are no PPI pressures to worry about. By the same logic, if there are no PPI pressures, the CPI will remain tame. The dilemma is then obviously a lack of demand. So, the answer is (just as obviously!) to keep the FF rate low enough to stimulate demand until: (1) there is a bidding war for a shrinking available labor pool, or (2) a leap in capital investment as companies expand to satisfy the increased demand. Then there would be PPI pressures, and it would be safe to start raising the FF rate. As Roach points out, most macroeconomic modelers (including the Fed) have been slow to adjust to the Global impacts of the entire Globalization trend. For example, heightened demand in the U.S. has so far not resulted in greater employment in the U.S., but has resulted in growing trade deficits, runaway growth in China and global commodity inflation. Read Roach's essays. He seems to be one of the few macro economists who currently has a clear picture of the dilemmas the Fed has created for us all. Dave