Re: Euro Rates Slashed

[larson@xxxxxx (S R Larsson)]

William F Hummel:
>It is noteworthy that ECB has adopted a liberal tone in its
>monetary policy, as there has been much concern about the strong
>anti-inflation bias (tight money policy) of the Bundesbank.  That
>bodes well for dealing with the long lasting high unemployment
>rate in Euroland which is over 10% in Germany and nearly 11%
>overall.  It also puts pressure on the Federal Reserve to make
>another cut in the Fed funds rate which currently stands at
>4.75%.  I'll bet a dollar that the rate will be dropped to 4.5%
>at the Dec 22 meeting of the FOMC, with more to come next year.

Can anyone who's a POST-KEYNESIAN on this list explain to me how interest
rate cuts can help cutting unemployment, when at the same time budgetary
austerity is being institutionalized via the EMU system? I say statistics
show there is at least a 9:1 advantage in using fiscal policy to boost
investment -> increase employment, over cutting interest rates. Therefore,
when interest rates AND government spending are being cut simultaneously,
the net result is most likely MORE unemployment, not less.

It doesn't really help to lay hopes for hike in employment in the hands of
the export industry. Some 90% of EU member countries' exports is intra-EU
trade.

Interest rate cuts does help consumption, but only if there is a bright
look-out on the labor market. Just as endogeneous money theory tells us,
money follows, not leads, real sector activity.



/srl

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Sven Robert Larsson
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