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Strategies & Market Trends : Asia Forum -- Ignore unavailable to you. Want to Upgrade?

To: Tommaso who wrote (178)	12/26/1997 5:31:00 PM
From: Zeev Hed	Read Replies (1) \| Respond to of 9980

Tommaso, there is actually a second parameter that throw a monkey wrench into the simplistic monetary picture (and Friedman, I believe was one of the first to recognize it), and this is the change with time of the velocity of money, as technology of money transfer, increase use of magnetic payment means etc., increases the money velovity, less of it is required to maintain the same economic growth. You are also pin pointing another fallacy held by many economists that growth rates above 2.5% in the US must lead to inflation, and the same increase in productivity you mentioned allow much greater growth rates without inflation. I am no expert in econometrics, but I would guess that if the economy growth rate could be maintainded at 3.5% or so for a number of consecutive years without the feds stepping in and inducing cooling with higher interest rates, we could solve a great chunk of our chronic deficits. This both due to less expenditures in the form of lower interest rates as well as higher revenues from a more productive economy. Last, we the yield curve flattening, I think "Smart Rubin" is going to replace more of the short term debt with 30 years stuff. This should allow the short part of the curve to go down a little faster than the long part and get us more to a normal yield curve. Wishful thinking? Zeev