10-05-2003 03:02									#31
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quote: Originally posted by Kidicious How are you measuring intrinsic strength? It's also strong against the Yen. The European economy doesn't seem to be growing fast at all. There is one thing that is changing though. The financial markets are booming. If the economy doesn't grow though this will only be temporary. Here's a 6-month chart of the DAX.

As you said, the European economy is almost stagnant, and as far as the financial markets are concerned, over the last six months, we can hardly say that they are booming : we see it as a partial recovery after a sharp fall (exactly the same profile in the Paris stock exchange).

So, there is no reason for the Euro to become stronger under the influence of the economy.

	10-05-2003 03:22									#32
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quote: Originally posted by DAVOUT As you said, the European economy is almost stagnant, and as far as the financial markets are concerned, over the last six months, we can hardly say that they are booming : we see it as a partial recovery after a sharp fall (exactly the same profile in the Paris stock exchange). So, there is no reason for the Euro to become stronger under the influence of the economy.

You lost me. To me you would want a weaker currency to deal with those problems.

	10-05-2003 04:56									#33
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quote: Originally posted by HershOstropoler BEA uses hedonic deflators, the difference is estimated at about 0.5% per year.

Nice to see that my analysis has had an effect

I'm forecasting 8% to 9% growth in 2003-2006 for the US, but only 6% for the EU (unadjusted).

The EU economy tends to stay 1-2% below trend untill a boom happens (when it rapidly moves to 1-2% above trend), whereas the US tends to move more smoothly from bust to boom.

So I think the US will have several years of 3%-3.5% growth before next relapsing into recession whereas EU growth (as it is currently measured) will be 2%-2.5% for 3-4 years followed by a couple of years at 3%-4%.

As it is I expect that average reported growth rates for 2001-10 to be 2.9% for the US and 2.2% for the EU - that translates into a fall in the realtive US's GDP per head from 140% of the EU's in 2000 to 130% in 2010

	10-05-2003 05:07									#34
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quote: Originally posted by Kidicious You lost me. To me you would want a weaker currency to deal with those problems.

I am trying to interpret what the ECB is doing.

As we have no influence on the way the US$ evolves, we do not react to its moves, and our decisions are only referring to the European economy. It could be different in the future, when the Euro will be a more significant reserve instrument, but I think that currently the ECB is refraining from overreacting to outside influences.

	10-05-2003 05:27									#35
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quote: Originally posted by DAVOUT I am trying to interpret what the ECB is doing. As we have no influence on the way the US$ evolves, we do not react to its moves, and our decisions are only referring to the European economy. It could be different in the future, when the Euro will be a more significant reserve instrument, but I think that currently the ECB is refraining from overreacting to outside influences.

In my opinion the ECB is trying to maintain a currency that is stronger than the Dollar to prevent capital flight. If they keep the inflation rate below 2% they can do this, since the Fed targets our inflation rate at about 3%. The problem is that there are heavy costs involved in decreasing the historical inflation rate. It shouldn't be forced, and I think that is what the ECB is trying to do. I don't see any reason for the ECB to keep interest rates where they are since the Euro already has sufficient strength against the Dollar. The only reason is to lower the inflation rate, and I see problems there.

	10-05-2003 05:40									#36
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quote: Originally posted by Kidicious In my opinion the ECB is trying to maintain a currency that is stronger than the Dollar to prevent capital flight. If they keep the inflation rate below 2% they can do this, since the Fed targets our inflation rate at about 3%. The problem is that there are heavy costs involved in decreasing the historical inflation rate. It shouldn't be forced, and I think that is what the ECB is trying to do. I don't see any reason for the ECB to keep interest rates where they are since the Euro already has sufficient strength against the Dollar. The only reason is to lower the inflation rate, and I see problems there.

I cant remind if we ever had interests rates lower that the current ones, at least not during the last 50 years. We are in the unknown, and I am not sure that reducing again the rate would produce anything else that lowering inflation up to deflation, which is really the worst consequence possible.

I am badly impressed by the US monetary policy which reduced the rates without furthering the economy, but killing inflation, for the profit of bonds holders, and supposedly for helping the stock exchange to recover.

	10-05-2003 05:50									#37
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quote: Originally posted by DAVOUT I cant remind if we ever had interests rates lower that the current ones, at least not during the last 50 years. We are in the unknown, and I am not sure that reducing again the rate would produce anything else that lowering inflation up to deflation, which is really the worst consequence possible. I am badly impressed by the US monetary policy which reduced the rates without furthering the economy, but killing inflation, for the profit of bonds holders, and supposedly for helping the stock exchange to recover.

There is concern to worry, because interest rates are very low. I think there should be some coordination between the central banks to give a significant boost to the world economy before it's too late. Since interest rates are already low, small boosts are ineffective. The only policy left will be significant spending by our governments if we slip into a deflationary spiral and monetary policy doesn't work.

	10-05-2003 12:34									#38
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"I think there should be some coordination between the central banks to give a significant boost to the world economy before it's too late."

The last thing we need is another round of global reflation. We got that in 1987 and 1997/8, resulting in boom and bust. Another round of that, and the next bust could dig us into another depression.

	10-05-2003 12:37									#39
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quote: Originally posted by HershOstropoler The last thing we need is another round of global reflation. We got that in 1987 and 1997/8, resulting in boom and bust. Another round of that, and the next bust could dig us into another depression.

There are always booms and busts. Sometimes you can delay them for awhile. A depression is a rare event caused by special circumstance, not just a little monetary stimulus.

	10-05-2003 12:46									#40
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And we're not talking about "a little" here. Japan is already ****ed from its late 80s experiment, the US in trouble from its 90s experiment. This reflation round would be at our expense then, I suppose?

	10-05-2003 15:42									#41
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quote: Originally posted by Kidicious I think there should be some coordination between the central banks to give a significant boost to the world economy before it's too late.

I am not sure that a US institution is currently willing to coordinate with an Old Europe institution
And Tony Blair cannot help on that matter.

But even if it were politically possible, Central Banks must be selfish, and are, by design.

The next problem for the dollar, in the next few years, is probably that the main holder of US public debt will not be the Japan but China, and coordinating with China will certainly be a quite different thing than coordinating with Japan.

	10-05-2003 21:22									#42
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quote: Originally posted by HershOstropoler And we're not talking about "a little" here. Japan is already ****ed from its late 80s experiment,

That was caused by corrupt banking practices.

quote: Originally posted by HershOstropoler the US in trouble from its 90s experiment.

The experiment that conitinued the longest expansion period in US history

quote: Originally posted by HershOstropoler This reflation round would be at our expense then, I suppose?

You are already in trouble. You need something to help you out.

	10-05-2003 21:25									#43
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quote: Originally posted by DAVOUT The next problem for the dollar, in the next few years, is probably that the main holder of US public debt will not be the Japan but China, and coordinating with China will certainly be a quite different thing than coordinating with Japan.

I hope our CBs think differently. Could be dangerous if they don't. I think they get along better than our political leaders.

	10-05-2003 22:33									#44
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Kidicious:

"That was caused by corrupt banking practices."

Oh right, sure. How could I forget that, and that there's no corruption in US finance.

"The experiment that conitinued the longest expansion period in US history"

Oh my, a paultry 10 years. Can you repeat that without a bubble?

"You are already in trouble. You need something to help you out."

Yeah, but we're not all uncle Alans who believe that easy money solves every problem.

	10-05-2003 22:38									#45
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quote: Originally posted by HershOstropoler "The experiment that conitinued the longest expansion period in US history" Oh my, a paultry 10 years. Can you repeat that without a bubble?

The bubble existed long before it popped. Sure, the Fed could have raised interest rates high enough to pop it and cause a recession. But they aren't in the business of causing recessions. They are suppose to prevent recessions.

	10-05-2003 22:52									#46
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Why would there have been a recession if the Fed hat tipped the breaks back in 1997/1998?

	10-05-2003 23:55									#47
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quote: Originally posted by HershOstropoler Why would there have been a recession if the Fed hat tipped the breaks back in 1997/1998?

They did raise through the mid 90s. It weakened growth. They only lowered rates after they realized that the expansion was coming to an end.

	11-05-2003 00:08									#48
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They only raised from the very low levels of the bank reliquification. "They only lowered rates after they realized that the expansion was coming to an end." - nope, when they smelled systemic risk for the speculators.

	11-05-2003 00:29									#49
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quote: Originally posted by HershOstropoler They only raised from the very low levels of the bank reliquification. "They only lowered rates after they realized that the expansion was coming to an end." - nope, when they smelled systemic risk for the speculators.

It may appear that way. Of course they didn't want the bubble to pop, but remember the Fed targets the iflation rate. In the late 90s the rate of inflation fell below 3% and that's why they didn't raise rates further. And of course in 2000 there bacame a threat of deflation so they lowered rates. The Fed doesn't target investment bubbles. Greenspan was aware of the bubble throughout the 90s. He even made public comments about it in the hope that it would make investors think about it. That didn't work, but the Fed never had the will to pop the bubble. They simply targeted the inflation rate. The ECB also targets the inflation rate

	11-05-2003 00:49									#50
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"And of course in 2000 there bacame a threat of deflation so they lowered rates."

In 2000? Ah, that explains the Fed's Y2K rampjob.
Seriously, deflation was not an issue in 2000, not even for this notoriously easy Fed - they raised rates 3 times in 2000 by a total 100 bps.

"The Fed doesn't target investment bubbles."

Oh it does, just in an asymetric way.

"The ECB also targets the inflation rate"

Not exclusively.

	11-05-2003 02:24									#51
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quote: Originally posted by HershOstropoler In 2000? Ah, that explains the Fed's Y2K rampjob. Seriously, deflation was not an issue in 2000, not even for this notoriously easy Fed - they raised rates 3 times in 2000 by a total 100 bps.

I was refering to the 4Q. Maybe I'm 1 Q off.

	11-05-2003 02:55									#52
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I'm curious. Is your opinion popular in Europe? Here in the US its generally considered good for the Fed to fine tune the economy and target the inflation rate at 3%.

	11-05-2003 04:04									#53
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Interesting enough Inflation in Germany aint the Inflation measured in Portugal.
Also Inflation is measured at a completly other measurement system in US-EU so if someone was kind enough to state in which system they talk?

	11-05-2003 04:45									#54
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quote: Originally posted by Main_Brain Interesting enough Inflation in Germany aint the Inflation measured in Portugal. Also Inflation is measured at a completly other measurement system in US-EU so if someone was kind enough to state in which system they talk?

The Fed targets the US inflation rate and the ECB targets the EU inflation rate.

edit: and you can't target regional inflation rates. That's a problem here in the US too.

	11-05-2003 05:22									#55
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The 50 years following WWII are made of two parts :
- until the end of the 70s, everywhere inflation up to 2 digits, resulted in a massive transfer from lenders to borrowers; actual rates of interests, that is nominal rate less inflation, was often negative;
- in the early 80s, suddenly, inflation was reduced sharply, and quickly to the level we see now; this improved considerably the income of the rentiers, and created incidentally considerable social adverse consequences : actual rates of interest significantly positive makes much more difficult the reimbursement of loans.

This revolution has never been explained satisfactorily; I do not consider satisfying the simple affirmation that inflation is bad when you remind the fantastic prosperity enjoyed in occident between 1950 and 1974. Although I can accept that it is sound from an abstract point of view, the practical end result is worrying only because of the public debt; all great nations have now in their budget a chapter of interest representing a considerable amount of the total (in France it is around 15% of the state expenses). And this good money is send every year (and growing) for a good part abroad to unidentified people who are actually taxing the taxpayer. This illustrates that in a system where inflation has been eliminated, the borrower cannot easily reimburse, whatever he is, a state or a citizen. And this explains the reason why Central Banks have such a high preference for the low interest rates, where they should prefer low actual rates.

Sooner or later, inflation will reappear, only to make possible for the states to bear the burden of the interests.

BTW does somebody has a link to a summary of the US budget?

	11-05-2003 19:53									#56
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The first places to look for data on the US are these three sites;

1) Congressional Budget Office
2)The Economic Report of the President
3)The Fed

Also go to these sites for other info;

1)The Digital Economist
2)Dr. John Shaw's (my old prof) datalinks

	11-05-2003 20:51									#57
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Kidicious, thanks.

Excellent links.

In the Digital Economist : in fiscal 2002, Interests 332 billions (19% of the Federal budget).

	11-05-2003 21:10									#58
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quote: Originally posted by Kidicious I know, they want to ring the last bit of inflation out of the economy. Why are they so paranoid about inflation?

The 2% max. inflation is the superior goal of the ECB, as defined by its status. ECB experts decide how to reach this goal, but they do not decide what the goal is. It would take a EU summit to stop this nonsense.

	11-05-2003 21:41									#59
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"The 2% max. inflation is the superior goal of the ECB, as defined by its status."

Aha. Care to tell me in which article of the ECT or the ESCB statute the 2 % is enshrined?

	11-05-2003 22:45									#60
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SOrry, I haven't browsed the statutes of the ECB, but what I gather from the Treaty establishing the European community :

quote: Article 8 A European system of central banks (hereinafter referred to as "ESCB") and a European Central Bank (hereinafter referred to as "ECB") shall be established in accordance with the procedures laid down in this Treaty; they shall act within the limits of the powers conferred upon them by this Treaty and by the Statute of the ESCB and of the ECB (hereinafter referred to as "Statute of the ESCB") annexed thereto.

quote: Article 105 1. The primary objective of the ESCB shall be to maintain price stability.

From the ECB brochure :

quote: The ECB has announced a precise definition of its primary goal. Price stability has been defined as a year-on-year increasein consumer prices in below 2%

My bad, the 2% limit isn't in the statute. Maybe the BCE will change its definition of price stability to allow a more lax monetary policy. I say a good definition for "price stability" would be 20% Now that would give leeway