European Stars And Stripes (Newspaper) - August 14, 1988, Darmstadt, Hesse                                Page 18 the stars and stripes sunday August 14,1988 business news fed s rate hike sends Dollar up temporarily a Surprise half Point hike in the . Discount rate sent the Dollar on a one Day ride skyward last week before comments by West German finance officials succeeded in dropping the cur Rency Back to previous Levels. The discount hike announced by the .Federal Reserve on tuesday pushed the rate the Central Bank charges other Banks to 6.5  move was designed to combat rising inflation it sent the Dollar above 1.92 Marks in Frankfurt an 18-month High. Currency traders had expected the Bundesbank to sell dollars to counter the Greenback s Rise but the German response took the form of what one banker called the psychological a  on thursday Gerhard Stoltenberg Germany s finance minister called the Dollar s Rise problematic and said a further Rise in Hebuck would Hurt the German Economy and slow the process of reducing International Trade deficits. By . Kominicki also wednesday Bundesbank president Karl Otto Pohl in an interview with Forbes mag Azine said a continued Rise in the Dollar would erase the last 18 months of Effort by the United states in lowering its Trade deficit. Stoltenberg s comments were enough to motivate the profit takers into leaving their Dollar positions an american banker in Frankfurt said. After that the bandwagon effect came into play everyone was dumping their  traders said they expect the Buck to coast through at least tuesday when the Commerce department is scheduled to release june Statis tics on the . Trade deficit. Most investors Are looking toward the Trade figures to reset the Market a German banker said. We saw a five pfennig swing in the Dollar in two Days although the Basic economic Situa Tion remained unchanged. It was All talk. So investors who left Dollar positions want something solid to go on before they get Back  until then traders said most investors were parking their funds in British pounds and other currencies offering higher yields. The currency markets expect the deficit Toswell slightly to just More than $11 billion from the seasonally adjusted $10.9 billion posted inlay. If the deficit widens More than expected traders said the Dollar would drop perhaps to allow As 1.81 Marks. Any Large improvement in the Trade Gap ruled out by almost All estimates would sen the Dollar shooting higher traders said because there remains Long term bullish sentiment forthe Buck. If the deficit comes in at around $11 billion the players investors won t really have any where to go one trader said. Following release of the Trade figures Market attention was expected to Center on a Bundesbank meeting scheduled for aug. 25, where a decision on raising German interest rates is looked for. Most traders believe the Bank will announce a half Point hike in the German discount rate to 3.5 percent which should serve to stabilize the Dollar at its current higher  if the Bundesbank is really interested in stabilizing the Dollar something has got to be done to lower the interest rate spread Between the United states and Germany a German banker said. England has been raising its rates Bel Gium just raised its rates Rumor has it that Japan will be raising its rates. Germany has to lure investors away from higher . Yields and they re not going to do it with a discount rate of 3  feathers Fly following fracas from fed s discount rate fixing new York a the Federal Reserve raise the discount rate to 6.5 percent from 6 percent last week causing economic forecasts to flurry about like a flock of pigeons escaped from the Coop. It was confusing. Some said the fed had to act to slow the Economy which was overheating and some said the action would be the death of the Economy which already might have been showing signs of slowing. Some said it would Hurt stocks and some said i would make them More attractive since it might fur ther strengthen the Dollar which in turn would make foreigners with lots of Money want Dollar denominated investments. All this debating will continue for weeks to command impressive As it might sound could in the end if there is one add up to nothing at All. As one economist observes there seems to be a paucity of common sense of late. What is proven is that 1 economists disagree 2 they often disagree impressively but not always with erudition and 3 very few people really know where the Economy is going and that May include the Feder Al Reserve. John Tuccillo economist and author of the lament about common sense noted a while ago that while economists have occasionally been More spectacularly wrong never have they been so consistently wrong in so Many Small  Tuccillo chief economist and vice president of the National association of realtors has attempted to keep himself free from the snares of abstract formulas and computer models that cause some economists to leave reality. It allows him to comment As he did in his latest Outlook that what is missing from most models i common  in forecasting he says it May be More useful to observe if your driving is impeded by Public works projects a sure sign of Prosperity rather than looking at the quadratic reaction function of Mon Centric eco nomic  economists believe in economic models but he observes that those models Are Only As Good As the data put into them. In his View Many of the models could be filled with irrelevancies with material meant for earlier eras. There Are some real changes going on in the Ameri can Economy that May require some revisions in the Way we look at what goes on he says. The conventional Wisdom is being questioned. Old notions might not fit today. At the same time he continues economists Are under growing pressure to comment. More and More economists Are being asked to comment on every Little statistic he says. Combine this pressure with those shaky models says Tuccillo and you Force economists to Wing  it does t work. Their answers Are Dull incomprehensible wrong or All of the above he states adding what i am really suggesting is that most of economics at least from the perspective of the general Public is common sense. Too much the profession relies on spatial location models to determine the Best markets rather than asking regional franchise managers where they will replacing their franchises and  from Tuccillo s perspective an oddity and irony of the scene is the More esteemed the credentials of the economists the More Learned and academic the Back ground the More scientific the models Are the worse Are the  again he Calls for common sense Plain thinking and Clear expression All of which seem from time to time to be forgotten by Many who attempt to think profoundly. And that brings him to Gracie Allen the old comedy partner and wife of George Burns. I think in essence she is a useful guide to the times says Tuccillo. Although Gracie s strings of logic were As convoluted As Dan they were always grounded in some observation of the real rather than some  purchasers of adjustable rate Loans tighten Home buyer qualifications new York a arms can stretch Only so far. That s the approach being taken to adjustable rate mortgages these Days at the big government create corporations that buy and insure Many of the Home Loans made in this country by Banks savings and Loans and other financial institutions. Over the last few years the Federal National Mort Gage association known As Fannie Mae and the fed eral Home loan mortgage corp., or Freddie Mac have been tightening the standards for adjustable rate Loans they will accept. Lately they both have adopted similar criteria if Home buyer makes a Down payment of less than 20 percent of the Purchase Price he or she must qualify financially to make the mortgage payments in the Sec Ond year of the loan. Why the second year because Banks savings institutions and other lenders typically promote arms with enticingly Low rates for the first year. After that the rate and the monthly payment inmost cases changes according to prevailing trends in interest rates. The Lender typically specifies a Cap on How much the interest rate can increase. Generally Caps run at two percentage Points in any one year and five or six Points Over the life of the loan. Thus to meet Fannie Mae s or Freddie Mac standards a Borrower putting less than 20 percent Down and applying for an Arm with an initial interest rate of 8 percent would have to be Able Topay at a 10 percent interest rate in the loan s Sec Ond year. Whether this is a Good idea or a bad one depends on your Point of View. In theory at least it May to slam the door on the housing Market for some would be buyers who do not have the Money to make substantial Down payments. Just How Many is hard to say. Freddie Mac has figured that the limits will affect about 6 percent of All applicants for arms. The limits certainly Are not being applauded by builders who want customers to buy their wares and who Are not usually involved in the mortgage part of the Deal. At the same time however the setting of standards for arms can be seen As a form of discipline on a financial product that is susceptible to Over exuberant promotion if not downright abuse. The bait of a very Low first year interest rate can turn out to be poisonous for borrowers who do not anticipate How much the Cost of their adjustable Loans can increase with the passage of time. It s not such a bad idea when you think about it says Tara Little a spokeswoman for the american Bankers association. Since arms first came into wide usage in the Early 1980s, they have been of great Benefit in broadening the Supply and availability of housing credit said Charlotte Sterling a spokeswoman for Fannie Mae. But they have to be used prudently. You Don t do anybody any Good at All by putting people in a House they re not going to be Able to pay for she asserted. Fannie Mae s and Freddie Mac s standards it should be noted apply Only to Loans those organizations buy from Banks and savings institutions. Dennis Campbell senior vice president of Market ing at Fannie Mae said Many lenders Issue arms that they do not intend to resell. Therefore he said Home buyers May Well still be Able to find an institution that is willing to Grant a mortgage with less stringent requirements. However he said the trend in the mortgage Busi Ness is toward More definitive standards for arms. As Jeannette Bernay a spokeswoman for Freddie Mac put it we want to get people into Homes but we also want to keep them