ed,
am reading your reply-to-the-austrians for the third time. i am a bit slow in these matters. had not even heard of the austrians 4 months ago. ran into them not long after i began reading everything i could find on economics, a virgin field for me. it is difficult to be living thru such times and not want to know the whys and hows, but it ain't in the least simple.
reminds me, appropos of absolutely nothing, how when i was beating around in various countries almost 40 years ago folks thot that australians were simply confused austrians, much to the displeasure of aussies who tended to sew their nation's flag on their backpacks in an attempt to gain authenticity, and folks also thot california was a very large and rich land somewhere near the usa, which inflamed everyone else. aren't aging men tiresome? better go trim my nose hairs soon.
i, too, am uncertain about competition for the smaller pool of savings driving up interest rates; we seem to have no pool of savings at all, but do seem to have an almost endless supply of capital due to increases in m3, et al. my understanding of how this pool expands due to lending and re-lending, taking out the required margin reserves as you go, is sketchy. i can vaguely see how securitizing debt, i.e. the growth of the gse's, also expands the pool. as i say this all mystifys me just a bit. making money out of debt stretches my credulity.
<<The simpler explanation may be that in times of increasing liquidity fueled by sharp increases in the money supply, the demand for goods and services increases dramatically.>>
ok, now what is the diff. between 'increasing liquidity' and 'sharp increases in the money supply'. if the answer is too complex just tell me there really is a diff. and i will accept that. i would have to comment, though, that we have had both for the last few months and demand is genrally falling off - housing being the exception. is this where psychology, aaii, etc., comes in, or is it a matter of a time lag? you imply that production will increase due to more money, but how long will this take? i think as sentiment, consumers esp., falls demand simply cannot increase. i understand that excess capac., due to malinvestment, is part of the problem, i.e. the profit compressions, due to the present inventory overhang. i know we have to work thru this now, regardless of the state of the pool of capital.
your third para. addresses inflation. that in energy i can see is demand driven. housing, i am not so sure. (the entire housing thing seems quite anomalous) is it not possible that our excess liquidity is now mal-flowing into that mkt. and that the demand isn't really there, hence here comes a bubble? a huge capacity to build is fueled by endless capital looking for high returns - disaster on the horizon? is production increasing well beyond demand in housing? i recall this happening in office space years ago.
and the idea that rates of interest will rise as inflation is forseen seems quite sensible. or they simply rise to counter risk - same thing? i guess i do agree that, on the surface, a shrinking pool of capital is not causing rates to rise right now. it is some other mechanism.
this reply may seem a bit jumbled - it is. i am such a novice at this stuff that i gain a great deal of pleasure from simply thinking i understand what some boffo college boy has said. i suspect you are one of those phd-creeps masquerading as an ordinary guy and trying to make the likes of me look foolish. shame!
as for looking foolish, i do apologize to razor. i had been watching javelinas in the yard, trying to gore the corporal, and forgot myself.
don |
