     Anonymous1 (Anonymous1) | Wednesday, November 01, 2000 - 07:34 am 
I feel the two major party evils are going to lead us into some bad times socially AND economically (big business loves BOTH). Anybody care to comment?
P.S.- I know this is more political than what is on this site, but I feel both major party candidates are going to f the consumer royally by catering to special interests more than ever.
Also, the state of California's Senate race is between queen donation hound Feinstein and her opponent, I take money from the FINANCIAL SERVICES INDUSTRY Campbell. This worries me... |
| Erik (Erik) | Wednesday, November 01, 2000 - 10:08 am
I think keeping interest rates and inflation low is what will help consumers the most. Not being an economist I don't really understand too much about what causes them to go up and down but I suspect that keeping a balanced budget and paying down the debt helps. Clinton-Gore did well with that so I trust Gore more than Bush to keep that going. |
| Michael Bardelli (Bull22) | Thursday, November 02, 2000 - 02:58 am
It really doesn't matter who is more consumer friendly. The candidates are going to cater to special interest groups whether republican, democrat, green, or independant parties. Don't waste your vote on Ralph Nader. He won't even get 2% of the popular vote. Vote for the candidate that will support your particular views. Being military, I am an avid republican. Go BUSH!!! |
| June Logan (Junel) | Thursday, November 02, 2000 - 04:27 am
Interest rates and inflation are really controlled by the people. We have more jobs due to the great age of technology we're in. Therefore we have more money to put in the bank and to make purchases. Since we have more money to put in savings, the banks can lend more which keeps interest rates low. If we all decided to go to the bank today and take out our savings, our money wouldn't be there. This would cause interest rates to skyrocket. As you can see, I don't give much credit to the Clinton/Gore administration for our economic wellbeing. It's up to us to prosper by making good investment decisions and keep the wealth flowing. Can you believe some of us thought a while back that computers would take jobs away? |
| Shylock (Shylock) | Thursday, November 02, 2000 - 05:10 am
Both interest rates and inflation are controlled by the Federal Reserve. Inflation is pretty simple and is covered by the formula MV = PT
What this means is that the amount of money times the velocity of that money is equal to the average price times the number of transactions. If you'll think about that for a moment you'll realize that it's obviously true.
Inflation is when the P(rice) starts to go up. This is normally measured through the Consumer Price Index. However, since MV = PT when the P goes up something else has to go up too. Either the amount of money M goes up, the velocity of money V goes up or the amount of transactions T goes down.
Now the amount of transactions almost always stays the same or inches up a little. We're always going to need to buy food, gas, clothing, etc. and as the economy grows the number of transactions increases.
The velocity of money doesn't change that often either. It requires a technical revolution in the banking world to move money faster. Although we have seen that happen before it's not something that just happens everyday.
More than 99% of the time when P(rices) are going up it's because M(oney) is being created and pumped into the economy. For example if the federal government stopped collecting taxes and just printed all the paper money it needed to pay for what it wanted to spend then we'd have massive inflation.
Inflation nowadays normally happens when the Federal Reserve purchases government bonds. These bonds are 'monetized' meaning that the Fed buys them with newly printed paper money. Accordingly the Fed has increased the amount of paper in circulation. Why would the Fed do that?
Two reasons: One practical and another semi-altruistic. The federal reserve is a conglomerate of banks. It is a for-profit organization. By printing money and buying bonds they make a profit. The second, semi-altruistic reason is to keep interest rates lower.
Let's suppose that the federal government needs to borrow money. They will issue bonds in $1,000 denominations paying let's say 5 percent a year. Let's say they need to raise $40 billion. So they'll print $40M bonds.
Let's further suppose that not enough people want to buy these bonds. Perhaps they're invested in dot-com stocks or something and they're not interested in bonds. In order to sell those bonds they'll lower the price to $999 instead of $1,000 but the bonds will still pay $50 a year meaning the yield has gone to 5.005 percent. Interest rates on the 30-year bond have just gone up.
Next month they need $40 billion more and this time they have to drop the price to $998. Interest rates are still going up. At a certain point banks will eye the bonds. They can borrow money from the federal reserve at the established rate and buy the bonds making a profit.
At this point the Fed will do one of three things: (a) Nothing, letting the banks take the profit (very unlikely) (b) Raise the federal funds rate or (c) Purchase enough bonds with newly printed paper money to keep interest rates from further rising (and making a tidy profit). As you can see most often the Fed chooses C.
The problem with C is that it causes inflation. When inflation is 1 percent and the federal funds rate is 5 percent the Fed is making a 4 percent spread. But if their buying of bonds pushes inflation to 1.25 percent then they're not making as much money. They'll need to bump the funds rate to 5.25 to make the same spread.
Now normally they'll couch it in words like "We need to stop the economy from overheating" and "there seems to be irrational exuberance in the stock market that needs correction" or "the increase in the money supply is a result of increased borrowing (correct) so we need to raise the cost of borrowing to cut down borrowing (incorrect)." The borrowing that's CAUSING the inflation is the federal government borrowing by issuing bonds and having them bought by the federal reserve. As we all know it doesn't really matter HOW high interest rates go our government is still happy to continue borrowing money for Medicare, Social Security, education or some other program conducted "for the children."
The people that will stop borrowing if rates continue up are a) Home purchasers b) Businesses and c) Consumers. That means houses will be harder to afford, businesses won't expand into new product lines as quickly and people will stop buying new big ticket items like cars. That means recession.
It takes time for those interest rates to fully make their way through the economy -- about 18 months. Accordingly the recent raises that the fed made (about a year to 18 months ago) are now causing "profit warnings" on Wall Street as companies warn that consumers are buying less while their cost of borrowing money has cut into profits. Stocks stop going up under those situations. We're still gearing up for holiday spending so there will still be employment for now, but after the holidays expect a recession. |
| Don (Don) | Thursday, November 02, 2000 - 06:02 am
I personally don't give two cents for the difference in polcies between the two. Congress will temper them either way.
What people should be concerned about is that ned next prez will get two appoint two or three Supreme Court justices. Think about how they will affect your future. |
| Shy Guy (Shyguy) | Thursday, November 02, 2000 - 06:28 am
Actually, ultra-low inflation (like we have now) isn't good for most people -- but it's great for bankers and investors. Inflation tends to transfer wealth from the rich to the average joe. Because most of us are debtors with a low or negative net worth, inflation means that we're paying back our debts with dollars that are worth less. That's why keeping inflation low is one of the banks' top priorities.
The key, however, is wage inflation keeping pace with price inflation. Unfortunately, wage inflation (at least, wage inflation of non-CEO types) is the type of inflation the Federal Reserve hates the most. (Notice how up the Fed panics when unemployment decreases.)
But for homeowners especially, inflation is good. If you have a $1,000 a month fixed mortgage, that amount doesn't change, while your wages go up. Also, the value of your home (most Americans' only real asset) increases.
That said, some inflation can also be very harmful to consumers -- especially if wage inflation is being kept in check. For example, if energy prices increase without wages increasing, people are worse off. This inflation, however, is tough for the Fed to control. (Tightening the money isn't necessarily going to change OPEC policies.) |
| Anonymous1 (Anonymous1) | Wednesday, November 08, 2000 - 07:09 am
Looks like President Bush (deja vu?) is going with the anti-consumer trend now that he owes all his special interest buddies. (sigh)... |
| Don (Don) | Wednesday, November 08, 2000 - 09:14 am
Unfortunately, special interest catering doesn't belong to only one party. You are forgetting the Buddhist temple and the revolving door at the Lincoln bedroom. |
