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

To: mishedlo who wrote (14313)	10/29/2004 5:12:22 PM
From: GraceZ	Read Replies (3) \| Respond to of 116555

I believe this statement to be idiotic. It is higher productivity rates that leads to the need for fewer workers and leads to less money in the hands of workers and more competition for jobs etc. Ultimately this is what the FED needs to understand. Nope. What you express here has been expressed since the beginning of the industrial revolution and it has been proven over and over to be dead wrong. Rising levels of productivity ultimately lead to higher aggregate wealth, increases in income, expanding markets and rising standards of living as well as a greater value being placed on capital (money, capital goods, raw materials, knowledge and human capital). Consider if we take the inverse of the statement and say, falling productivity leads to higher incomes and increases in wealth. You know this to be false so why do you think the inverse is true? From John Steel Gordon about the productivity boost that occurred subsequent to the invention of the sewing machine: Singer's sewing machine was an immediate hit. It is not hard to see why. A shirt that took a seamstress fourteen hours and twenty-six minutes to sew by hand could be produced in one hour and sixteen minutes with the new machine. Many clothing workers (there were an estimated 5,000 shirt makers in New York alone in 1853) feared for their livelihoods at first. But, as usual with laborsaving devices, the effect of the sewing machine was to enlarge their business, not to destroy it. As the price of ready-made clothes dropped, the increasing market for them made up for it many times over, one of the fundamental reasons capitalism has made the world a richer place.

To: mishedlo who wrote (14313)	10/29/2004 6:09:53 PM
From: CalculatedRisk	Respond to of 116555

Thanks for posting Ferguson's speech. First, the assertion that the real Fed Funds rate has moved positive seems incorrect. This is usually measured from the CPI rate (2.5% over last 12 months), not the core personal consumption expenditure rate. So a 1.75% FED funds rate is still a negative real rate. All of the research I've read, indicates the historical neutral rate (Economist Wicksell's "natural rate of interest") is 1.5% to 2% above CPI. This speech makes it clear that the FED recognizes the economy is very weak, and they don't understand why (too much debt, poorly structured fiscal policy, poor public policy are a few of the reasons). For most of this year, Greenspan has been pretending (hoping?) that the economy was in recovery. Maybe this was for political reasons, maybe for personal reasons (Greenspan thinks he handled the post-bubble period correctly). Maybe its because emergency interest rates have always worked in the past, why not now? However we look at it, I think the FED has finished raising rates for awhile. OK, maybe one more 25 bp move, but I'm sure there will be disagreement on that move. Overall a very interesting speech.