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Politics : Ask Michael Burke -- Ignore unavailable to you. Want to Upgrade?

To: Knighty Tin who wrote (49236)	2/27/1999 10:50:00 PM
From: Peter Singleton	Read Replies (2) \| Respond to of 132070

MB, Thread, Had to pass on this article from Reuters ... the hubris of US economic policy-makers is stunning. Also read Nick Chase's latest outlook (posted on Fiend Bear) and played around with his numbers of compound growth rates after the bubbles burst in the US in 1929 and Japan in 1989. A few years of negative, compounded annual growth rates on equity values gets to be a pretty ugly number, and something folks in this country are wholly unprepared for. key quote from the Reuters article: <<Being in charge of the world's last true economic superpower has boosted the spirits of Treasury Secretary Robert Rubin and his team, who are touring the world with an unmistakable air of superiority. ''Our example is a powerful one,'' a senior U.S. Treasury official mused last week after a meeting of finance officials from the world's major industrialized nations in Germany that was almost completely dominated by the United States. Financial markets have now set their sights on the Fed's next scheduled rate meeting on March 30. While analysts expect the central bank to hold rates steady at that date, most say all bets are off at the Fed's subsequent meeting on May 18. Still, even a slight rise in rates to curb inflation and keep the expansion alive is unlikely to reverse the sense of tremendous economic achievement among Washington officials.>> These guys are positively Clintonesque. <ng> Peter dailynews.yahoo.com Saturday February 27 9:39 AM ET Key U.S. Rates Have Nowhere To Go But Up By Knut Engelmann WASHINGTON (Reuters) - The only way is up. That just about sums up the outlook for key U.S interest rates after a week that saw several top Federal Reserve officials think out loud about the dangers of inflationary overheating in an economy that continues to defy any and all expectations of a slowdown even after eight years of growth. Not that the Fed would raise rates right away, something it has not done in almost two years. But central bank watchers agree that Chairman Alan Greenspan and his colleagues at the Fed have shifted their focus from the ailing world economy back to the boom in the domestic economy -- and are ready to move rates higher at the first sign of an inflationary pick-up. What they are looking at is an economy that is growing at rates most economists would call unsustainable despite the fact that inflation remains tame. Even the manufacturing area, which has taken a harsh blow from the drop in export demand caused by the downturn elsewhere, displays signs of recovery. Small wonder, then, that Greenspan is having second thoughts about the Fed's aggressive easing moves late last year, when it cut the key overnight federal funds rate by three-quarters of a percentage point to 4.75 percent to shield U.S. financial markets from the fallout of turmoil abroad. ''The Federal Reserve must continue to evaluate...whether the full extent of the policy easings undertaken last fall to address the seizing-up of financial markets remains appropriate as those disturbances abate,'' he said in his twice-annual monetary policy report to the U.S. Congress last week. To translate the ever-opaque central banker's words into plain English: The economy is straining at the seams, and it would be ludicrous to even think about further rate cuts now. The message was heard loud and clear in the bond markets, hanging on Greenspan's every word for clues about the future direction of interest rates -- prompting a huge sell-off in government paper that was not reversed until bargain hunters entered the scene Friday and pushed prices back up again. ''Bond (yields) have backed up not because people are thinking the Fed will raise rates but because they think the Fed will no longer lower them,'' Joel Prakken, chairman of Macroeconomic Advisers in St. Louis, Mo., said. ''That's the big story -- the removal of the anticipation of a rate cut.'' The latest evidence of the economy's unfaltering strength came Friday, when the government said growth in the last three months of 1998 was at a higher-than-expected 6.1 percent, one of the highest rates for any quarter in the 1990s. Just a day earlier, it said January orders for costly manufacturing goods had risen at the fastest pace in more than a year. ''It's mind-boggling,'' said Joel Naroff, Philadelphia-based economist at First Union Corp. (NYSE:FTU - news) ''Either the batteries will run down or the Fed will pull the plug -- one way or another, we will have to slow down.'' That message was reinforced Thursday by Laurence Meyer, traditionally one of the more conservative decisionmakers at the Fed, when he addressed an economists' club in London. Keeping rates too low in an environment of tight labor markets and fast money growth risked unleashing inflationary pressures that would be difficult to counter, he warned. Thus, one of the questions facing the Fed now was ''whether the degree of easing implemented (in 1998) should be reassessed in light of the subsequent improvement in financial conditions and the continued robustness of domestic demand,'' he said. And Greenspan's deputy Alice Rivlin told an audience in New York the Fed had ''no option but to continue to evaluate the situation'' as some of the good luck that had allowed the U.S. economy to perform as well as it has could easily run out. This reassessment of the economy's fundamental strength comes at a time when the picture in much of the rest of the global economy still is all but rosy. Emerging markets are fighting to overcome a financial crisis that started in 1997. Japan is stuck in recession, and European growth is slowing. The irony of the situation is not lost on Greenspan and his brothers in arms at the U.S. Treasury. Being in charge of the world's last true economic superpower has boosted the spirits of Treasury Secretary Robert Rubin and his team, who are touring the world with an unmistakable air of superiority. ''Our example is a powerful one,'' a senior U.S. Treasury official mused last week after a meeting of finance officials from the world's major industrialized nations in Germany that was almost completely dominated by the United States. Financial markets have now set their sights on the Fed's next scheduled rate meeting on March 30. While analysts expect the central bank to hold rates steady at that date, most say all bets are off at the Fed's subsequent meeting on May 18. Still, even a slight rise in rates to curb inflation and keep the expansion alive is unlikely to reverse the sense of tremendous economic achievement among Washington officials. Said Naroff: ''There's no question this is a miracle economy -- the only question is how long this miracle will continue.''