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To: Alex who wrote (22984)	11/15/1998 10:51:00 AM
From: goldsnow	Read Replies (1) \| Respond to of 116763

"What we want to see is some real, tangible evidence of money creation...which will have an impact of reflating commodity prices. We want to see gold at US$400 (S$659) an ounce, we want to see the commodity price index...20-25 per cent higher ...to be confident that this upturn in global reflation is going to lead the world economy out of this abyss." Falling rates could set off stocks bubble By Catherine Ong HE US Federal Reserve is likely to cut interest rates by another 25 basis points on Tuesday, but central bankers around the world have to be careful not to allow falling interest rates to set off a serious bubble in equity markets, a senior economist warned yesterday. George Magnus, the London-based global chief economist of Warburg Dillon Read, said: "What policy makers have to do is to carefully engineer a reduction in interest rates which is going to help address the problems of indebtedness, debt service, credit crunch, and liquidity shortage while at the same time making sure we do not get one or two other things like an investment boom taking off, which is very unlikely given the excess capacity." He added: "We also don't want falling interest rates to set off a very serious bubble in the equity market because what you will get, given what has happened with corporate profits, is you get a whole lot of Ps and no Es," in a reference to prices and earnings. Addressing Warburg clients at a luncheon talk in Singapore, Mr Magnus pointed out that the present global economic downturn was set off by very different factors from those that triggered previous global depressions. While the latter were mostly caused by excess demand and inflation, the present downturn resulted from a debt overhang in emerging markets, excess capacity in many sectors such as steel, chemicals, shopping malls, banks and semiconductors. While Warburg is forecasting positive GDP growth for the US, Europe and Asia in 1999, Mr Magnus said: "Don't be fooled by real GDP numbers, the growth rate of money GDP is still declining." He warned that there is precious little prospect for recovery in output growth in G-7 countries. "What we want to see is some real, tangible evidence of money creation...which will have an impact of reflating commodity prices. We want to see gold at US$400 (S$659) an ounce, we want to see the commodity price index...20-25 per cent higher ...to be confident that this upturn in global reflation is going to lead the world economy out of this abyss." Fighting deflation, he added, is the main order of the day for central bankers. Mr Magnus reckoned that the Asian crisis, the economic troubles in Latin America and Russia are old news. The key uncertainty now is the extent of economic damage in the industrial countries, and this uncertainty will impede any return to stability in financial markets, he said. Warburg estimates that 40 per cent of the world is currently in recession. Mr Magnus expects that it will be a few more years before Asia can regain sustainable growth. Although Asia, with stronger fundamentals, isn't likely to go the way of Latin America which lost a whole decade in the 1980s, "in Asia, you are still going to be hostage to the Dow Jones", Mr Magnus said. business-times.asia1.com.sg

To: Alex who wrote (22984)	11/15/1998 11:02:00 AM
From: goldsnow	Respond to of 116763

Full story France, Germany signal calming of rates debate 06:45 a.m. Nov 15, 1998 Eastern PARIS, Nov 15 (Reuters) - France and Germany sought to calm the waters in Europe's interest rate debate over the weekend, just before they hold a regular economic summit in Bonn. In separate interviews in the French press, German Finance Minister Oskar Lafontaine and Bank of France head Jean-Claude Trichet both stressed that central banks were independent and should keep price stability as their main goal. French and German finance ministers and central bankers will hold a regular meeting in Bonn on Sunday and Monday. Fresh from several weeks of public clashes with the Bundesbank, Lafontaine was careful to avoid controversy while pressing his theme that central banks could also help economic growth and job creation. ''No one is calling the independence of the central bank into question,'' Lafontaine told the daily Le Monde. ''The primary mission of central banks is to assure price stability and no one is calling this objective into question,'' he said. ''In Europe, the Maastrict treaty obliges the European Central Bank (ECB) to support the Union's economic policy. The fight against unemployment is at the centre of that policy,'' he was quoted as saying. ''I deduce that along with defending price stability, the ECB must use its room to manoeuvre to fight unemployment,'' Lafontaine said. Trichet noted there was no controversial debate about interest rates in France and that keeping investors' and savers' confidence was the most important issue right now. ''If one wants to have lower interest rates in the medium and long term, one must inspire confidence,'' he told the Journal du Dimanche newspaper. ''To inspire confidence in French, European and international savers, one must not let oneself be influenced. Neither in one direction nor the other. ''We won't reduce interest rates further just because someone says we should! And it's not because someone suggests it a bit too loudly that we won't.'' The most important question for monetary policy in the coming months was whether the Stability Pact for the Maastricht Treaty was being respected. ''Unfortunately, I have seen some positions in Europe that do not go in the right direction,'' he remarked without elaborating. French Finance Minister Dominique Strauss-Kahn -- also of Europe's political left -- has been far more circumspect than Lafontaine about calling for rate cuts, though he has said economic conditions would allow them. Bundesbank President Hans Tietmeyer, who has so far resisted demands for easier policy, recently said he would not rule out lower interest rates if conditions warranted it. In the interview, Lafontaine pointed to the U.S. Federal Reserve, which is legally obliged to maintain price stability and promote full employment, as an example that a fully independent central bank could successfully support job growth. He said monetary policy in Europe was on the right track, but noted that real interest rates, official rates less inflation, were higher than they appeared. Despite the forecast of lower growth in Germany next year, Bonn would have no trouble respecting public deficit limits set in the Maastricht treaty, he said, sidestepping the issue of whether the Stability Pact should be loosely interpreted. ''In Germany, I repeat, we have no problem with the Maastricht treaty,'' the paper quoted him as saying. ((Paris newsroom, tel +331 4221 5339, fax +331 4236 1072, e-mail paris.newsroom+reuters.com)) Copyright 1998 Reuters Limited