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Hi all,
As a professional with an interest in investing and trading, I am far
from being an expert in the economy, but like many others I have been
pondering it's current statis as it may effect the markets and my
investments.
It seems to me that we have forgotten the key principal that
controls inflation, recession and even depression in our economy and hence
the world's. That key is monitary policy. Thru out the history of our
country, and probably the world, high inflation has been a rare enomoly, the
norm being low or no inflation. Our recent bought with high inflation had
it's roots in Lyndon Johnson's failed attempt to fight a war, create a
socalist system, and cut taxes. The only way to accomplish all this was to
print worthless money creating the seeds for high inflation.
At this point the new Kanesian economic theory came along which told
us that growth was the cause of inflation and the enemy, not printing
worthless money. Ah ha, said the politicians, we can keep printing money to
buy votes with give-a-way programs. Hurrah, said the fed, we have a silver
bullet to kill growth called high interest rates, and with all these new
programs anyone who has to earn a living will not mind being out of work,
they won't starve at least. The results: STAGFLATION (no growth, high
inflation).
Fast forward to the present. The people who according to T.
Jefferson always know the right thing to do, began to demand responsibility
from their elected officials (even Clinton). They began to cut spending and
at least attempt to ballance the budget, i.e. turning off the printing press.
The result: high growth and employment, a stock market, which always knows a
good thing when it sees it, soaring through the roof, and wonder of wonders
NO SIGN OF REAL INFLATION!
So what are we worried about? As usual the generals are fighting
the last war. The fed is ready to kill growth, which they mistakenly beleive
causes inflation. The markets (who have also been convinced) hang on every
report waiting for the inevitable rate increase. The only question left is
can an old Greenspan learn new tricks? Mabey, time will tell.
Good luck and good trading,
Ray Raffurty
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