Interest terug naar Kennedy niveau

[TomB]

Interessant artikeltje.
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WASHINGTON (AP) - Federal Reserve policy-makers appeared ready to ratchet down a key short-term interest rate to its lowest level in 45 years in the hope it will energize consumer spending and business investment and help the economy snap out of a funk.

The quick, postwar economic boom that some economists had hoped for hasn't materialized. For the most part, businesses have been reluctant to ramp up capital spending and hiring, major factors holding back the economy's ability to return to full health.

Consumers, meanwhile, have been the main force keeping the economy afloat. Even they, however, have been more inclined to spend cautiously than to splurge amid the muddled economic climate and sluggish job market.

"It's hard to escape the feeling that the economy is just barely treading water," said Carl Tannenbaum, chief economist at LaSalle Bank. "There isn't a lot of energy out there."


The economy grew at a mediocre 1.9 percent annual rate in the first three months of 2003. Economists don't believe the economy fared much better in the current April-June quarter and may have done worse. Forecasts of the second-quarter economic growth rate range from 1 percent to more than 2 percent. In the last quarter of 2002, economic growth clocked in at a poky 1.4 percent annual rate.

Economic activity needs to crank up to a growth of around 3 percent or higher to get back into a more normal growth pattern and get companies to really start hiring, economists say.

Against this backdrop, economists widely expected Federal Reserve Chairman Alan Greenspan and his Federal Open Market Committee colleagues to slice the federal funds rates - now at 1.25 percent, the lowest since President Kennedy's first term - by either one-quarter of a percentage point or a bolder one-half point when they wrap up a two-day meeting Wednesday. An afternoon announcement was expected.

The funds rate is the Fed's main lever for influencing the economy. The last time the Fed cut the funds rate, the interest banks charge each other on overnight loans, was Nov. 6.

Reducing the funds rate to either 1 percent or 0.75 percent would push that rate down to a level since 1958.

"A rate reduction is all about taking out some insurance against the risks that the economy will be weaker than the Fed actually expects," said Bill Cheney, chief economist at John Hancock Financial Services.

Commercial banks probably would match any reduction in the funds rate with the same-sized cut to their prime lending rates, a benchmark for many consumer and small-business loans.

The prime rate, which generally moves in lockstep with the funds rate, currently stands at 4.25 percent, the lowest level since 1959. At either 4 percent or 3.75 percent, the prime would be at its lowest point since 1958.

A reduction to the funds rate also would be aimed at warding off the economically dangerous threat of deflation, a widespread decline in prices, something that could emerge from a stagnant economy, economists said.

Although Greenspan and his colleagues say the chance of deflation is remote, the central bank still must be alert because of deflation's potential to wreck the economy, they said. Fed policy-makers raised the specter of deflation at their last meeting on May 6 and have talked about it since then, raising expectations the Fed would cut rates at its June meeting.

"If deflation is really the concern, it is better to attack full out than piddle around," said Joel Naroff, president of Naroff Economic Advisors. "Thus don't be surprised if the rate cut is more aggressive than many think it will be."

The United States' last serious deflation occurred during the Great Depression. A bad case of deflation can lead not only to widespread price declines, from goods and services to real-estate and stocks, but also to job losses and pay cuts.

Economists are hopeful the economy will pick up more speed in the second half of this year, with some predicting a growth rate of around 4 percent. A new round of tax cuts signed into law by President Bush last month should help on that front, analysts say.

Even so, economists aren't expecting a quick turnaround in the job market. The nation's unemployment rate climbed to a nine-year high of 6.1 percent in May as businesses cut 17,000 jobs. Depending on the strength of economic growth in coming quarters, the jobless rate could hover in that range or move higher, economists say.

There have been a few encouraging signs for the economy's revival. Manufacturing activity, which has throttled back production and laid off workers, improved in May. New claims for jobless benefits, while still at high levels, have gone down for two weeks in a row, raising hopes that the pace of layoffs might be stabilizing.

[wardje]

Interessant inderdaad. Maar niet veel stof voor discussie he
Wat ik mij afvraag: is het gevaar voor deflatie groter in Europa dan in de VS? Met de sterke euro...

En dan? Wat helpt er dan nog? Rente verlagen helpt dan niet veel meer he. Economisten gevraagd!

[TomB]

Lees vanonder vooral.

Deflation Explained
By Donald L. Luskin - LuskinReport.com
Issue Date: Aug 17 2001

What is this thing called deflation? We're in the middle of it, and we answer some of your biggest questions about it.


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Comments and questions continue to flood in about deflation. After months of writing about it, following the pioneering work on deflation over the last four years by Jude Wanniski of Polyconomics, and by MetaMarkets Think Tank member David Gitlitz of Kudlow & Co., the subject is finally getting real traction. You read about it in the mainstream financial press and hear about it on CNBC almost every day now.

So let's get to some of the questions that have been pouring in by email; you've already seen my responses to the questions posted here on the discussion boards.

Is this article similar in description to "stagflation"?

"Stagflation" is the combination of inflation and stagnation - it puts together two categories of analysis that are best kept separate, but are often confused. The first category of analysis is monetary - is the unit of account (the currency, i.e., the dollar) appreciating or depreciating versus goods, services and assets? If it is appreciating, then prices of all things are falling, and that's deflation. If it is depreciating, then the prices of all things are rising, and that's inflation. The second category is macroeconomic -- is the nation's economy expanding or contracting, and how fast? This can be measured any number of ways, such as gross domestic product, national income, retail sales, employment, and so on.

Just as you can have inflation at the same time as you have stagnation -- as in the United States in the 1970s - you can also have any other combination of monetary and macroeconomic states. For example, you could have "depansion," which is the combination of deflation and expansion. Or you could have "intraction," which the combination of inflation and contraction. It's a myth that inflation produces growth (or is caused by growth), and it's a myth that deflation is the same thing as contraction (though the words are often sloppily used interchangeably). The only truth is that, over the long term, the goal of sustainable growth is best achieved with neither inflation or deflation - both tend to induce costs and inefficiencies that retard growth.

Do you think that Greenspan Co. are as smart as you are - do they recognize the problem as you see it? Also, assuming they do, are they willing and able to take the appropriate action?

Gee, that's a flattering question. And I'm just arrogant enough to take the bait: no, I don't think that Greenspan & Co. see the threat of deflation as I do. And I think I am right and they are wrong. Greenspan - and just about everyone else, for that matter - has been conditioned from birth to think in terms of inflation only. Inflation is bad. It is to be feared. And if inflation is bad, then its opposite - deflation - must be good, or at least unimportant. That's why Greenspan & Co. go nuts at the first imagined whiff of inflation - and launch "preemptive" attacks against it, even at the cost of killing the greatest bull market in history. But even when advanced signs of deflation are all around them, they don't even notice.

What does all this mean to the individual consumer/investor? If we do, in fact, enter a "deflation crisis," it would seem that the wisest course of action for the individual would be to get very liquid and thereby preserve his purchasing power.

All else equal, in a deflation crisis cash is king. The very definition of deflation is that cash appreciates versus goods, services, and assets. So you certainly don't have to worry about purchasing power. Quite the contrary. Just sit on cash or bonds, and watch your purchasing power get greater and greater. That's what people have been doing in Japan for 10 years, and why zero interest rates don't help.

OK, let us say the Fed prints more money and buys government bonds; now government has the printed money. How does it get into the consumer's pockets to stimulate buying? Will govt drastically reduce income taxes or capital gains? Then it is possible. The boom was technology-driven and so was the bust. As technology becomes affordable, reliable, businesses will invest again in technology and a new cycle will start. My thinking is that it is two years away. A lot of people have lost a lot of money believing in the instant tech promise that failed to materialize. They will not buy just because they have money in pockets. They will be cautious for a couple of years until their losses are recouped.

When the Fed buys bonds, it is not buying them from the government - it is buying them from banks. This puts banks in the position of holding non-interest-bearing instruments which they will be eager to lend out. But the model works even if the Fed buys bonds directly from the Treasury. Normally, the Treasury sells bonds to ordinary people in exchange for their cash - this no money is created or destroyed when the government borrows. But if the Fed prints fresh money to buy the bonds, then the government will spend that money in the economy and it will get into people's hands - without taking it away from them at the same time by making them buy the bonds. As to the second part of the comment, I totally agree. The purpose of quantitative easing is to cure deflation, to repair an assault against the integrity of the unit of account, and to restore economic actors to the parity of relationships that existed before the deflation played hob with all their long term contracts and commitments. This will not in and of itself electrify consumer demand and make everyone go out and buy three Cisco routers whether they need them or not. But it will alleviate the burden of excessive illiquidity that comes from the natural preference to hoard cash when cash is king.

[TomB]

Het is ervan gekomen (yay!)

Laat ze maar inflatie creeren. Hoe meer hoe liever lol.

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NEW YORK (Reuters) - Stocks closed lower on Wednesday as investors were rattled by the Federal Reserve's warning of possible earnings-roiling deflation and disappointed that it cut interest rates by only a quarter point.

After the rate-setting Federal Open Market Committee trimmed the bellwether federal funds rate to 1 percent, a low not seen since 1958, the Fed announced it was ready to cut the cost of borrowing even more if the risk of falling prices worsened, which some analysts said spooked some investors.

"Until we see margins increase and pricing power return ... I wouldn't be surprised if the market continued to sell off," said Diane Garnick, chief U.S. strategist at Dresdner Kleinwort Wasserstein. Fed chief Alan Greenspan had "told us explicitly not to worry about deflation but that's the number one concern that they're talking about today," she said.



The Dow Jones industrial average (DJI) fell 98.32 points, or 1.08 percent, to 9,011.53. The Standard & Poor's 500 Index (SPX) lost 8.13 points, or 0.83 percent, to 975.32, and the tech-laced Nasdaq Composite Index (IXIC) lost 2.95 points, or 0.18 percent, at 1,602.66.

Volume was active with 1.44 billion shares traded on the New York Stock Exchange and 1.56 billion on Nasdaq. Gainers beat decliners by narrow margins on both markets.

Earlier, stock indexes clung to gains as investors nibbled at technology stocks bruised in recent sessions. The Nasdaq was positive for most of the session, rising as much as 1.50 percent.

MODESTY PREVAILS

The Fed was widely expected to slash rates when it wrapped up its two-day meeting but the size of the cut, half a point or a more modest quarter point, had been debated by market watchers -- and a slim majority had leaned toward the more aggressive easing.

The U.S. economy has yet to exhibit sustainable growth, the Fed said in its statement, leading some to wonder why it opted for the more modest easing. It was the 13th rate cut since early 2001.

"To do 25 when they could have taken out 50 and to say their concerns are still with the downside risks on inflation -- it doesn't seem they've taken out all the insurance they could have," said James Glassman, economist at J.P. Morgan Securities.

Nextel Communications Inc. (NXTL), which was among the stocks listed as Lehman Brothers' "10 Uncommon Values," rose 41 cents to $16.95, or 2.48 percent.

Another bright spot was Freddie Mac (FRE). The No. 2 U.S. mortgage finance company rose 80 cents, or 1.6 percent, to $50.83 after it said it expects to restate earnings for 2000, 2001 and 2002 upward by as much $4.5 billion. Investors welcomed the clearer picture of the size of the restatement and management's move to fix the accounting mess.

Goldman Sachs Group. (GS) reported earnings rose by 23 percent. But its shares, which are up about 26 percent this year, fell $1.82 to $84.78, or 2.1 percent.

Carnival Corp. (CCL) (CCL) fell $1.01, or 3.16 percent, to $31. The top cruise group reported a smaller profit and said earnings for the rest of the year would be lower than expected.

After the close, Manugistics Group Inc. (MANU) said its net loss narrowed from a year ago, as the business software maker booked lower sales. Shares fell to $4.60 on the Instinet electronic system from a close at $5.20 on Nasdaq.

MIXED DATA

Wall Street got a mixed bag of economic news.

The government said sales of single-family homes rose 12.5 percent in May and realtors reported sales of existing homes rose 1.2 percent that month.

But the government also said orders for durable goods -- big-ticket items like cars -- slipped 0.3 percent in May. Economists had expected a 0.8 percent rise.

Paul Cherney of S&P MarketScope said the Fed move was what the market wanted. The real problem markets face is that companies don't want to take advantage of the lower rates to spend more and create jobs in an uncertain economy, he added.

"What the market will look for now is signs of earnings improvement in the July earnings season," Cherney said.

[wardje]

En wat doet de ECB ondertussen Volgen mannen! En rap een beetje!

[Antoon]

De ECB heeft nooit anders gedaan. Het zijn de Amerikanen die de plak zwaaien.

Zeg TomB, om het aantrekkelijker te maken , probeer eens kortere stukken over te schrijven. Bijvoorbeeld een zinnetje of een alinea. Maar niet telkens zo'n boterham.

Verder zou het leuk zijn mocht je een samenvating geven in het Nederlands.

Die ellenlange Engelstalige teksten zijn ontmoedigend om te lezen.

[TomB]

Hier, speciaal voor Antoon:
De Amerikaanse Federal reserve bank heeft de rente laten zakken tot 1%. Renteverlagingen moedigen investeringen aan omdat het goedkoper is om geld te lenen.

Je kan de rente uiteraard maar tot op nul verlagen. Zit men dan nog steeds met een markt die niet investeerd, dan bouwen voorraden zich op in de bedrijven en wordt daaruit geleverd. Hoe meer voorraad, hoe meer 'aanbod' op de markt. Dit brengt een neerwaardse druk met zich mee op de prijzen. Als de prijzen algemeen dalen, noemt men dat deflatie.

Deflatie is zeer gevaarlijk omdat het zichzelf voedt. De prijzen dalen, dus we gaan nog wat wachten met investeren tot als het goedkoper is. Resultaat: Nog meer voorraden omdat iedereen wacht, prijzen gaan nog meer naar beneden. Uiteindelijk creeer je dan een periode waarin de economie krimpt, met alle gevolgen vandien. Staatsinkomsten dalen, verkoopscijfers zijn lager, lonen worden negatief geindexeerd, werkeloosheid stijgt etc. Intussen kan u echter uw schuldenlast maar tot 0% rente hernegotieren, dus neemt uw koopkracht af. Voor een land zoals Belgie heeft zoiets nefaste gevolgen omwille van de staatsschuld, voor een land zoals de VS heeft dit nefaste gevolgen omwille van de schuldenlast van de bevolking.

Uiteindelijk is dit een eigenschap van de economie, deze crisisen zijn onvermijdelijk. De tech-bubble van de jaren negentig heeft voor een hele hoop fictieve waarde gezorgd, nu eten we daarvan de gevolgen.

Maar laat ons optimistisch blijven. De grootste fortuinen van de vorige eeuw werden gecreerd tijdens de jaren 30. Mensen kijken vaak verschrikt op naar deflatie, maar uiteindelijk is het deel van de survival of the fittest. Het is als het ware de grove borstel van de economie. Als je blij bent in ons systeem te leven, moet je dit erbij nemen. Er is geen enkel alternatief dat voor meer vooruitgang zorgt.