posted 05-09-2000 02:44 PM         

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Interesting, gatsby. I never thought about a conference call impacting the Fed in such a manenr. Did you read an article somewhere that suggested the connection? I don't see why Wal-Mart's analysis would weigh more than the Fed's own analysis.

As far as a 75-100 point hike, from what I have read about Greenspan, I think he is the kind of guy that doesn't want to be remembered as the destroyer of the boom. On the other hand, he doesn't want to be the man that let inflation take over. So, I guess what I am saying is, I seriously doubt we will see a 75 or 100 point hike at this meeting. You'll notice that the Fed hasn't really shocked anyone yet--they kept moving 25 points, and now, only after the news broke that a 50 point hike was discussed at the last meeting does a 50 point hike seem likely. the Fed doesn't want to cause a panic, so they let people prepare for what is coming. Maybe over the next week people will get prepared for more than 50 points, but I won't. Jumping from 25 to 75 is too abrupt. There is a lag involved with these hikes, and Greenie has been cautious not to move too far ahead. This doesn't seem like the time to jump the gun.

posted 05-08-2000 12:03 PM         

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I need a refresher on my econ. courses. In response to uncleharley's last question, I see a 50 basis point hike. there was a lot of talk about it at the last Fed meeting. I think everyone is beginning to price that in, and it will be a pretty significant shock if they don't.

As far as the budget surplus, isn't the strong economy causing the surplus--as people's incomes have increased, the amount they pay in taxes have increased. So, to argue that the gov't is taxing us to a point it can't spend the money, it might just be that people have been earning too much for the gov't to spend. So, I am not sure the surplus really tells us much about fiscal policy.

I can't remember this from my classes, but isn't the money supply is controlled by purchasing and selling of debt, not the rate hikes. It is only recently that repurchasing has come to my attention-- so I am wondering if Greenspan has really been tightening the supply for very long. Maybe someone can explain to me how the rate hike tightens the money supply. I am not ready to find my old textbooks just yet!

posted 05-05-2000 12:03 PM         

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What is important is long term rate. When these rate will get to Keyne's Liquidity Trap we will anyway see that the market will go out of long term assets to liquid assets.

GreenSpan have no control on long term interest rate only on short term and they are sometime inversely correlated as we will see after the raise next time.

And no matter how prudent will be the banks they will have tons of bad debts....

That is how the bubble will burst.

Still there is a life after the Burst: http://shlem.virtualave.net

Regards,

Shalom Patrick Hamou

posted 05-04-2000 06:54 PM         

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Fed Chairman Alan Greenspan warned U.S. bankers not to be lulled into complacency in managing risk, especially with sophisticated financial tools such as derivatives. (source: CNN) http://www.cnnfn.com/2000/05/04/economy/greenspan/

U.S. worker productivity rose just 2.4% in the first three months of the year while wage costs showed surprising strength, the government said. (source: MSNBC) http://www.msnbc.com/p/cnbc/403347.asp

posted 05-04-2000 12:55 PM         

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I'm just going to continue to talk to myself in here...
I found an article/commentary that deals with the issues econguru brought up about productivity and inflation. It's long, but I thought very informative and very bullish.

"Productivity : The trend in productivity growth is at the heart of the current new/old economy debate. If productivity growth accelerates, economic growth (and thus corporate profit growth) can remain strong without prompting higher inflation. Today's Q1 productivity report is calling the accelerating trend into question, as growth slowed to 2.4% from its 3.6% trend of the prior 12 month period. Many new economy skeptics -- and there are plenty -- are jumping on this number as evidence that the productivity boom is over. Can you say deja vu? Rewind to August 1999 and the release of the Q2 1999 productivity data. The preliminary release for that quarter revealed growth of just 1.3% and a large 3.8% jump in unit labor costs. At that time, we heard volumes from stubbornly old (economy) economists about how productivity growth was not accelerating, potential growth was not rising, and inflation would not remain contained. We noted at the time that productivity numbers are extremely volatile on a quarter to quarter basis, and that it was stupid to declare a trend on the basis of one number. As it turned out, productivity growth boomed in the succeeding two quarters by 5.0% and 6.9% in Q3 and Q4, bringing the year/year pace to a new late-business cycle peak. Now, we have a number of 2.4% that keeps the year/year pace at a very strong 3.5%, and the old economy school that previously thought trend productivity growth was 1% calls this a bad number. Please spare us. The productivity boom continues and will reach a new and higher plane as B2B technologies bring Internet efficiencies to the business-to-business realm. Finally, a little reminder about what matters. The market was frightened by a worse than expected Employment Cost number last week, but that measure is not the key to inflation. The key is unit labor costs -- how much a business has to pay to produce each unit of output. Wage and benefit costs can rise, but if productivity grows faster, unit labor cost growth will decelerate. That is what we have seen over the past year. And if unit labor cost growth is less than the inflation rate, then inflationary pressures stemming from the labor market are waning, not waxing. That is the case now, with year/year unit labor costs growing at a meager 0.7% vs total inflation of over 3% and core inflation of about 2%. In short, businesses are currently raising prices more than their unit labor costs are rising, and they can therefore either reduce the rate of price increases (lower inflation) or allow profit margins to rise. In short, today's productivity report doesn't change the bullish productivity and inflation view anymore than the Q2 1999 report did. Many economists will argue otherwise, but they will be the same economists who were wrong last year, and in 1998, and in 1997, and so on. - Greg Jones, Briefing.com"

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