RE: [FORTUNE] What could go right ?

From: Adam Rifkin (Adam@KnowNow.Com)
Date: Sat Mar 17 2001 - 15:52:23 PST

Help a novice economy-watcher out, will ya?


> The Fed's sudden, sharp rate cuts in January flooded the U.S. economy
> money. You can count on your fellow Americans to find ways to spend it.
> That alone is reason to believe in a comeback.

I don't get it. Why should the Fed be allowed to slam on the brakes in 2000
(150 basis points of increase in rates) and then slam on the gas in 2001
basis points of decrease in rates so far)? Is this kind of whipsawing

> The hints of inflation that the Fed decided to fight last year were mere
> wisps compared with the inflation of the 1970s and early 1980s.

How should inflation be defined? I don't remember the price of houses or
stocks in the 1970s and 1980s going up tenfold but I regularly remember
seeing this in the 1990s. On the other hand, the prices of bread and
and liquor seem stable. But why shouldn't inflation include prices of
houses and
stocks? Isn't that where a huge asset base in this company is?

> In the entire fourth quarter of
> 2000, corporations sold $4.4 billion in new high-yield debt in the
> U.S., according to Merrill Lynch. In the third week of January, issuance
> totaled $5.1 billion; in the fourth week, $5.2 billion.

Remind me why the junk market being able to raise billions is important?

> The sheer screeching rapidity of the slowdown (from 5.6% GDP growth in
> the second quarter of 2000 to 1.4% in the fourth) can also be traced in
> part to the products that tech companies have been selling to the rest
> of corporate America. Thanks to their massive investments in ERP
> (enterprise resource planning), CRM (customer-relationship management),
> and SCM (supply-chain management) software, and other groovy
> technological tools with impenetrable acronyms, American companies were
> able to sense the slowdown and react to it much more quickly than they
> could have in the past. The problem is that when thousands of companies
> adjust their expectations downward all at once, the cumulative effect is
> even worse than what any of their snazzy new technological tools could
> have predicted, resulting in lots of companies getting stuck with excess
> inventories precisely because lots of companies were trying to avoid
> getting stuck with excess inventories.

How ironic that in the end our ERPs and CRMs and SCMs didn't really
help us plan as well as we had hoped. But at least they kept us aware of
that fact as it was happening. :)


The Dow Jones Industrial Average stood at around 3,600 in early 1994. By 1999, it had passed 11,000, more than tripling in five years, a total increase in stock market prices of over 200%... However, over the same period, basic economic indicators did not come close to tripling. U.S. personal income and gross domestic product rose less than 30%, and almost half of this increase was due to inflation. Corporate profits rose less than 60%, and that from a temporary recession-depressed base. -- tml

What should we - journalists, intellectuals - do in a world where 358 billionaires have more assets than the combined incomes of nearly half of the planet's population? But can we still, as journalists and intellectuals, denounce this situation and suggest remedies when so many of these billionaires - the Bill Gates, Rupert Murdochs, Jean-Luc Lagarderes, Ted Turners, Conrad Blacks of the world - own the papers in which we write, the radios on which we speak, the television networks in which we appear ? --

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