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Strategies & Market Trends : The Epic American Credit and Bond Bubble Laboratory
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To: Ramsey Su who wrote (50440)1/20/2006 2:16:11 PM
From: J_Locke  Read Replies (1) of 110194
 
<<So basically are we all pretending to be investors when in fact playing a shell game?>>

I would call it not so much a shell game as a wealth transfer from workers to financial arbitragers. Someone who works hard and puts 10% of his after tax income into a safe investment vehicle like CD's or money markets is going to get screwed in the modern financial economy.

He will get a zero real return on his investment and people like Bill Gross and Paul McCully will call him a stooge and a patsy who doesn't "deserve" a real return on his investment because he's taking no "risk." In a sound fractional reserve system (say, post-war Germany), he would be rewarded because his self-denial would be creating the excess capital necessary for capital investment and economic growth.

In the Greenspan economy, his excess capital is unnecessary (even counterproductive.) The fed can lend money to Lehman Brothers at 1%, Lehman can lend that money to a hedge fund at 1.5%, and the hedge fund can buy all the corporate bonds and mortgage backed bonds necessary for the nation's capital investment needs (and then some.) Our poor 10% saver just provides the minimal reserves the banks need to keep lending to the leveraged speculators. The Fed Chairman may even accuse him of contributing to a "Global Savings Glut."
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