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Politics : Ask Michael Burke

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To: Thomas M. who wrote (67890)	9/19/1999 10:11:00 AM
From: Mike M2	of 132070

Thomas, the trouble with a credit bubble is you need an ever increasing expansion of credit to maintain the stimulative effect at some point balance sheets become so strained that a retrenchment is unavoidable. In addition, once the stimulation of easy credit which has fueled inflation in financial assets and real estate in selected areas is gone we will experience the wealth effect in reverse ( tough love). Asset bubbles encourage people to spend more and save less than would otherwise be the case. In Japan and Asia the easy money fueled excess investment in industrial plant and equipment as well as real estate. In the US the easy money has fueled excess consumption just like the 20s. see note on this thread about expensive homes. I have said before that I have never seen a luxury home building boom such as what is going on in Fairfield County, CT. Everything about this bubble is oriented towards maximum gain today at the expense of our future. Mike

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