Seminar: apologies, and further remarx

[Doug Henwood <dhenwood@xxxxxxxxx>]

Sorry for having injected myself into this relying only on my memory of
an article I read several months ago. I've now refreshed my aging memory,
and have these observations/queries:

1) Unemployment rates of around 6.0% are certainly not full employment in
the social sense, but is it not possible that skills shortages and the
like could lead to inflationary pressures at this relatively high level?

2) Regardless of 1), empirically speaking, capacity utilization rates
*are* at levels that have historically been associated with accelerating
inflation - sooo, aren't inflation hawks right to be concerned, from
their admittedly biased point of view?

3) Dollar weakness, which is a real-time symptom of foreign capital
shunning the U.S. and U.S. capital emigrating abroad (a symptom confirmed
by the U.S. international accounts), *is* something the Fed and everyone
else has to worry about. The U.S. still needs foreign money to finance its
deficits, and cannot be so cavalier about letting domestic considerations
take priority. Raising rates to make U.S. fixed-income investments more
attractive may be an international necessity. Greenspan may not have said
a word about it, but it still must be on his mind.

4) Concerning the last sentence - just because Greenspan and his
colleagues say something or don't say something doesn't mean anything,
does it? No doubt they hold Congresspeople and journalists in low regard
and tell them what they want them to hear. Relying on public statements
or leaks to favored journalists (like Bradsher of the NY Times, who must
have a very soggy ear by now) is pretty risky.

5) Banks were happy to let deposits roll off during the credit crunch
years. Loan-deposit spreads widened to record levels. Had banks felt
abandoned, they would not have let the spread widen so dramatically.
Calling the rate hike a gift to the banks is pure speculation.

6) How did the Fed engineer the steep yield curve to bail out the banks?
No doubt the steepness did have this effect, but the steepness was
probably the result of the aggressive easing in short-term rates, which
long-term bondholders viewed as unsustainable. Lifting short-term rates
would flatten the yield curve, and hurt banks and other players who
borrowed short to lend long ("the carry trade," in current Wall Street
jargon, since the cost of carry has been so much lower than the bond
rate). A flattening of the yield curve from near-record steepness to more
average levels argues for a return to a more "normal" yield structure, not
a wacky aggressiveness. You'd have to have a flat or negative yield curve
to confirm wackiness.

7) The public has no business getting so deeply involved in mutual funds
and stock and bond markets. If they lose their shirts, well, caveat emptor.

8) Sorry about the adjustable rate mortgage losses, Jamie, but you
shoulda refinanced!

Doug

Doug Henwood [dhenwood@xxxxxxxxx]
Left Business Observer
212-874-4020 (voice)
212-874-3137 (fax)