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Politics : Ask Michael Burke

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To: PaperChase who wrote (65971)	8/8/1999 10:53:00 AM
From: Mike M2	Read Replies (1) of 132070

PC, AG & company have done a remarkable job maintaining confidence but I do not believe that we have avoided disaster but simply delayed it at the price of a bigger disaster ( perhaps over the next few months). Two points about bank lending the financial sector ( non bank) has become a larger source of credit than the banking sector and the widening of spreads suggests liquidity problems and unlike bank loans the market of value financial sector debt is marked to market daily- you cannot hide problems for long. Maintaining credit expansion at a steady rate is not sufficient to keep a credit bubble going - credit must expand at an ever increasing rate at some point balance sheets will become so strained that rising defaults are inevitable. At this point we have deflation- the contraction of credit. The US experience of the 1930's and Japan in the 90's does not support the assertions of todays political economists that we can print our way out of depression. IMO all that AG & co. accomplished by prolonging the boom is to exacerbate the inevitable bust. Mike

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