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Non-Tech : Derivatives: Darth Vader's Revenge -- Ignore unavailable to you. Want to Upgrade?

To: Mama Bear who wrote (396)	10/5/1998 10:24:00 PM
From: ahhaha	Respond to of 2794

I don't see your counter-argument. We have low rates and high employment. The '80s saw high rates and low employment. Where is there a contradiction? High employment just makes excess wage demands more probable. This would be more evident if there wasn't an alternative source of cheaper labor. Regardless of the alternative cost at full employment, groups of individuals believe they can demand a wage in excess of their productivity. This has been the history of the 20th century. It is human nature. My work is valuable, yours isn't. The only containment of this attitude is foreign labor. They're poorer and have been willing to work for less at any quality. They will eventually learn our game and achieve compensation parity. Then you'll see some unbelievable inflation or a world out on strike. The '80s were a period where decades of growing structural inflation had distorted the allocation of resources. The free market had to raise rates to extraordinarily high rates to break the rational expectations for more inflation. Fortunately the Volcker FED did not immediately come in and start pumping. They stayed away until they thought they could get away with commandeering the market. The change came 8/13/82. The economy was intrinsically deflating fast enough so that slack existed, so fiat money creation was tolerated. Nonetheless, the interest rate structure came down very slowly and the FED after '87 decided decisively to make money supply growth the center of policy. With the exception of the reduction of capital gains rates this was the most important factor that created the prosperity of the '90s. The only reason why there is the appearance of falling rates is that fairly large quantities of capital are fearfully flowing into our T market. This is an aberration. Once the flow slows, the T market will significantly reverse and reflect the reality of unprecedented levels of full employment. Various Fed officials are crowing about a slowing in the US economy. The only slowing is a slowing in the rate of growth. The "slowing" is mostly due to precautionary discretionary spending moves by the public as they see their great expectations for wealth melt away with the declining stock market. The stock market will start advancing again and the FED will be back where they were, facing rising price pressures that won't be masked by the dollar. In that environment the mortgage rates will rise rapidly because they were artificially taken down.