excessive 90's money produced paper-based bubbles widely
I don't think that there is any economist of any school that doesn't think excess money printing [through lower rates] doesn't lead to a change in individual indiffernce curves in favor of more borrowing & speculation.
I prefer to return to the theory of the pond
if the pond is handed much more water, then in time greater supplies of fish render them worth less
at least a fish would be worth less per loaf of bread
(assuming tilled farmland remained constant)
the 90's saw unprecedented growth in money supply
the phenomenon was so great that even the majority of central banks sold time-honored gold bullion in favor of USTreasury debt which yielded a return
I regard this as almost heretic, and a violation of central bank responsibility in defending a stable currency
in the next 2-3 years this trend will likely reverse
especially if currency turmoil sets in more than just in Asia
the excess of paper money led to rising worth in all things paper-based:
- stocks (naz bubble, tech stocks trading at >100 PE, penny stocks from internet worth billions, etc)
- bonds (delayed move of longbond yield down under 5%)
- property (abundance of cheap money from low-rate mortgages)
- debt (who didnt raise billions in issuances?)
- even govt auctions of wireless spectrum
an argument could be made that two bubbles remain in the USdollar and US property
central banks have decided to eschew bullion in favor of a promissory note by the United States govt
the result is a bubble in the dollar that is doing mighty damage to US exporting companies, tech and nontech alike
the dollar bubble is linked closely to the USTBond bubble
with Fed money available at 1.5%, it is hard to argue that money is not free now
this sustains the bond bubble, and thus real estate
the dollar bubble is maintained by a required $2 billion per day to finance the US trade deficit
this cannot sustain itself
now the next few quarters will see the bubble release a slow leak as capital burns and the Fed reflates with fresh money
the big question in my mind is:
titanic deflation forces are burning capital
titanic reflation Fed forces are infusing capital
how long before the Fed wins?
what aberration will appear temporarily as a cost of victory?
my guess on timing is another 8-12 months time at least
Al Qaeda gauranteed that, as Q4 was anything but typical
aberrant vehicles like gold are being jumped upon within the nations with the most severe capital burning
e.g. Japan and Asia
the longer it takes for the Federal Reserve to prevail, the worse and uglier the aberration will become
and an aberration is an absolute certainty in my little mind
my biggest concern now is the correcion in the dollar, with its associated link to bond yields, might lead to sudden dislocations in our consumer spending from reduced value of real estate
US homeowners raped their home equity in the 90's
I am amazed the US and Europe have held up so well during this assault on capital
if not for zero rate car sales in Q4, and heavy govt spending in Q4, we would be knee deep in recession
instead, we delayed its most serious bite to come
/ JW |
