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Pastimes : Clown-Free Zone... sorry, no clowns allowed
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To: IceShark who wrote (4183)7/18/2000 1:23:15 AM
From: pater tenebrarum  Read Replies (1) of 436258
 
well, the real rate, yes. i actually suspect that real rates in the US may be negative right NOW. i'm just guessing that hedonic pricing and geometric weighting understate annual inflation rates by a pretty sizeable amount.
the best example is energy, which the BLS believes has become only 14-15% dearer over the last 12 months. in truth crude has tripled in price and assorted other energy complex components have doubled.
therefore it is highly likely that the true state of affairs is not revealed by the govt. data. the best gauge for this is a personal household budget...check how it changes over time to find out what inflation rate pertains to you. if it is higher than current interest rates, borrowing is a no-lose proposition.
thus it is no wonder that credit demand continues to exceed all forecasts - the Fed is in reality not pursuing a tight policy.
even if real rates are positive, they are not indicating a tight stance by the FOMC. obviously a tight stance would result in a decrease in credit demand. that is however not the case. on the contrary, credit demand is trending higher again after moderating slightly in the latter half of Q1.
in fact the credit and asset bubble continues to be fed at ever increasing rates. $5,30 in new credit for every $1 in GDP growth - that's the true essence of the "new era".
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