Re: Re: Re: Re: Re: Re: Re: Re: Re: beginning of the end?

[Doug Henwood <dhenwood@xxxxxxxxx>]

Jim Devine wrote:

> If  the Fed decides to pump up asset markets (with lower interest
> rates), it not only encourages the dreaded inflation -- still a
> major nightmare for the bankers and much of Wall Street, especially
> with recent oil price-hikes -- but also spurs a steeper fall in the
> dollar. On the other hand, if the Fed decides to defend the dollar
> (with higher interest rates), it encourages US asset markets to
> fall. The Fed has a hard time dealing with such linked crises.
>
> How does policy coordination help here? The other CBs would have to
> lower their interest rates to prop up the dollar -- which would also
> help US asset markets -- but do they want the Euro to fall even
> further (the logical flip-side)? That would also stimulate the
> inflation they fear (especially the Germans).

Coordinated interest rate cuts as a reaction to a panic would leave
cross-national differences unchanged, so the currency impact could be
minimized. And in a panic, CBers and traders would forget about
inflation and worry about keeping everything afloat.

What's your nightmare endpoint? 1929-32, or 1973-75, or 1979-82? We
could have a nasty bear market with a deep global recession, but
without total meltdown. I think total meltdown is highly unlikely,
though never impossible.

The nature of the next U.S. recession is very important. If it's
mild, then the profit upswing that began in 1982 did mark the
beginning of some long boom, which could on the next upcycle be more
widely generalized (which I think could be good news for the working
class). if it's nasty, then we've been living through a bubble, and
god knows what's coming.

Doug