To: TomAdkinsCC
One of my complaints about Greenspan's strategy has been that if people are expecting a rate cut, they will hold off on transactions that would leave them stuck at the current rate. By contrast, if people perceive that rates are going up, they'll try to lock in today's rates.
Of course, the difference between long-term and short-term rates means such behavior is not always effective. If there's a perception that short-term rates will drop, that drop will likely factor into long-term rates. Likewise if there's a perception that they'll rise. I don't think this is fully factored in by the market, though, since mortgage rates have tended downward even though they only place short-term rates can really go is up.
BTW, two points about taxes:
- This country is somewhat like a shopping mall that's losing tenants (as businesses go overseas) and losing money. What is the best strategy for the owner of such a mall: (1) raise rents; (2) reduce rents; (3) chain the doors so businesses can't leave?
- Part of the Senate's tax-cut package is a reduction in a certain foreign-business-income tax from 38% to 5%. I don't know how much revenue this tax covers now, or how much it will cover if it's passed, but suppose that there is today $10B in such revenue brought into this country yearly (netting $3.8B in tax). According to the Democrats, this cut will cost $3.3B in yearly tax revenue). Suppose, though, that after the tax cut, the amount of money brought into the country increases from $10B to $100B (netting $5B in taxes). Democrats won't say the tax cut brought in an extra $1.2B revenue. Instead, they'll claim it's costing $33B in revenue--ten times as much as expected.
2 posted on
05/17/2003 11:23:28 PM PDT by
supercat
(TAG--you're it!)
To: supercat
The Fed is playing with fire right now. They are, at least in part, responsible for the where the economy is. Greenspan wated to take the wind out of the sails of stock speculators who were running up share prices to obscene levels. So what did he do?...he raised interest rates. That was when started to lose respect for him, because if he really wanted to just get the day-traders to cool it, he could have raised margain requirements, thus weakening the traders' leverage.
The Fed is printing dollars like mad trying to stave off deflation. We have, IMHO, about 18 months before all this new cash works it's way through the economy. That will be when things get very interesting, to say the least.
3 posted on
05/18/2003 12:52:42 AM PDT by
Orangedog
(Soccer-Moms are the biggest threat to your freedoms and the republic !)
To: supercat
This country is somewhat like a shopping mall that's losing tenants (as businesses go overseas) and losing money. What is the best strategy for the owner of such a mall: (1) raise rents; (2) reduce rents; (3) chain the doors so businesses can't leave? Actually it's (4). Move the mall overseas.
It doesn't matter how low the rent is when no one in town has the means or the customers to pay the rent.
Sadly, "This country IS somewhat like a shopping mall". Everyone is shopping, no one is producing. That can only last so long, which is why the (fictitious) mall is on the verge of closing.
FreeRepublic.com is powered by software copyright 2000-2008 John Robinson