The real crisis
The raise in interest rates is never a crisis as it indicates a strong growth in the U.S. economy. A drop in interest rates, on the other hand, is what we really need to worry about. Think about this, if the U.S. economy is beginning to slow down (the recent weaker than expected economic indicators), and if the U.S. dollar keeps falling and commodity and raw materials remain high-priced, the Federal Reserve again needs to raise the interest rates as to maintain a massive inflow of capital to the U.S. in order to boost the economy. And that is the worst case for the worldwide stock markets.
In my opinion,
a raise in interest rates -> strong economy + increase in cost of capitals -> long-term benefit + short-term fallout
a drop in interest rates -> weak economy + decrease in cost of capitals -> long-term fallout + short-term benefit
In my opinion,
a raise in interest rates -> strong economy + increase in cost of capitals -> long-term benefit + short-term fallout
a drop in interest rates -> weak economy + decrease in cost of capitals -> long-term fallout + short-term benefit
posted by 動物男 at 3:09 PM
4 Comments:
Your opinion just states the implication of high/low interest rate, but not the effect on economy...
US people rely on borrowing too much, therefore if interest rate rise, they MUST suffer and spending will fall. This is when the Fed comes out to say "Economy is weak, let's cut rate."
Therefore, once the interest rate peaks, the problem of US economy should show...
Hmmmmm..... To be precise, i modified my statements as below:
strong economy (result in long-term bull market) -> inflation -> a raise in interest rates -> increase in cost of capitals (result in short-term fallout)
weak economy (result in long-term bear market) -> a drop in interest rates (-> decrease in cost of capitals -> short-term benefit) -> monetary crisis -> interest rates raise again??
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Under the second scenario, the U.S. household must suffer most and that is the crisis that i concerned :)
Think about the pre-1997 & post-1997 suituations, then u can understand all the stuff are about economy but not interest rates....(if the economy and household keep blooming, nobody would concern about the interest rates)
Therefore, the implication of high/low interest rates is noy my main concern.......my main concern is about the economy......
I believe that the interest rates are driven by the economy, but not vice versa (assumed that the interest rates are not unreasonably high).....if the economy still preforms strongly, there wont have any problem......if not.....then....
Hmmm.....
Okay, actually I agree with what you say. But then our discussion will come down to only 1 question,
What will happen to US economy?
In my view (as history tells), the economy wont be a good one...
Great site lots of usefull infomation here.
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