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Businessweek Archives

When The Fed Hikes Rates, It Harms Weaker Economies (Int'l Edition)

International -- Readers Report

When the Fed Hikes Rates, It Harms Weaker Economies (int'l edition)

Once again the Federal Reserve Board has raised the federal funds rate in an effort to cool off the U.S. economy in fear of an inflation that nobody is able to detect ("Who'd catch pneumonia if the U.S. sneezes," American News, May 22). The recent increases in the consumer price index (CPI) and producer price index (PPI) were caused by relative price accommodations within the economy, due to a much-needed oil price raise.

The increase in the CPI and PPI during March and April above Wall Street expectations was a one-time event, as was shown by the negative PPI figures after oil prices receded. The May CPI was flat. This is not inflation but a relative price change that occurs in any economy.

The Fed move will contribute little to slowing down the economy and a lot to maintaining a booming U.S. economy through "flight to quality" (or to the U.S.) of funds otherwise invested in the rest of the world.

The deterioration of most of the world's currencies against the U.S. dollar, the drop in price of developing countries' debt, the growing trade deficit in the U.S., the drop in U.S. import prices, and the weakness in American companies' earnings from international operations prove that assertion. Also, those countries that tied their currencies to the U.S. dollar, as did Argentina, are in a deep recession.

The U.S. won't see any inflation because the rest of the world is in different degrees of economic slowdown. By strengthening the dollar and raising interest rates, the U.S. will be able to put a check on internal prices and maintain the booming economy, while the rest of the world moves into a deeper recession.

The U.S. will continue to enjoy the benefits of globalization yet it should have the fairness to recognize the worldwide effects of its economic policies and act accordingly. The present world economy requires a more responsible U.S. monetary policy to make globalization acceptable to the rest of the world.

D.H. Carranza

Buenos AiresReturn to top

The Coming Shakeout in B2B Exchanges (int'l edition)

"B2B is the password" (Asian Business, May 22) offered an interesting interpretation of the business-to-business exchange marketplace. The question, whether in Asia or elsewhere, is: What will maintain the level of user participation that these businesses need to operate?

The marketplace for B2B exchanges is proliferating rapidly. Price wars are not a long way off, and $50 million is not a large war chest in Internet terms. Businesses will migrate to those exchanges that can offer the lowest costs and highest levels of added value. This means that those exchanges that want to survive should be looking to a service that does more than merely move a signal from one field in a database to another or arrange tables in value order to produce the "lowest" price. Those exchanges that can add value will survive. Those that can't are unlikely to.

Peter Stannack

Ashington, EnglandReturn to top

Shore Up the Euro--with Gold (int'l edition)

The lack of concern, or worse, the complacency of our political leaders as the euro falls worries me and a lot of other people ("The sick money of Europe," Finance, May 15). I am convinced that a sudden crash would become an insurmountable stumbling block on the way to a real Europe. Do we have to lean so heavily on the U.S. and follow every step of its financial policy? I suggest that we should sell U.S. dollars for gold; given the current gold prices, we would make a killing, and besides we would introduce a measure of stability in the world monetary system.

Giacomo Spina

Trieste, ItalyReturn to top

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