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

To: zonder who wrote (17531)	12/3/2004 11:52:31 AM
From: John Vosilla	Read Replies (1) \| Respond to of 116555

You have to wonder what would happen if interest rates on both the short and long end went back to say 1996 levels. I believe real inflation figures are being hidden by the BLS and are much much higher than 3% with the ramifications of this ultra easy monetary policy on our future a probable real negative not factored into the equation by anyone. So your housing, real estate taxes, insurance, food, car, gas, utility, medical amd education are rising at double digits each year. Somehow they want you to believe declining prices for all the electronic toys we have today that make up a fraction of our budgets will somehow offset it. So now we have a nation of folks that have become slaves to their mortgages all in the game up continuing to spend beyond their means and piling up more and more debts with no savings. <To me, the correct answer is (2), and what you do not seem to be taking into account is the INFLATION DATA. You know, PPI and CPI which were 4.4% and 3.2%, respectively, in October. Meanwhile, Fed funds rate is at 2%. How can you not understand why the Fed is raising interest rates? >

To: zonder who wrote (17531)	12/3/2004 12:09:08 PM
From: mishedlo	Read Replies (1) \| Respond to of 116555

Interest rates are not a tool to boost employment. If you look at a table of interest rates and unemployment through time, you will be amazed at the lack of correlation between the two. Rates are an efficient tool to control INFLATION, however. That is why Fed is nudging them up slowly, towards neutral. There is nothing bizarre about this, Mish. Here we go again. OK we had a huge blowup in the PPI. Raising interest rates is NOT going to solve the problems of peak oil and increasing demand in India, China, and Brazil. Nor will it solve increasing demand for Steel etc in India, China, and Brazil. That is my position and it is not going to change. I will not be shocked if they raise in Dec. Not at all. What I am shocked by is that 4 hikes have not slowed consumer spending (yet). In that regard I expect the Fed to keep hiking. We have a serious disagrement however over continued hikes. You keep failing to understand the LAGGING nature of rate hikes. They take TIME before they take affect. All of your analysis fails to take this into consideration. There is ZERO doubt, none, nadda, that deflation is going to come roaring back when housing slumps. The signs of a housing stall are aparent. We will see if another rate hike does it. It took 5 in the UK to do it, perhaps 5 will do it here. Note that consumer spending is showing serious cracks this holiday season. Have you heard Yellen and some other FED members recently? They are getting quite nervous and hinting that they will be looking closely at data. They are suggesting a possible pause. So is Paul Kasriel at Norther Trust. His column should be a doozy this afternoon! In addition, the PPI is likley to be crashing next month. My guess CPI too. Will I hear Zonder calling for pause? I doubt it. I believe the neutral rate to be about where we are. I can not prove it to you and you will probably never believe it. Long term I believe rates have only one way to go: down. Mish