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Strategies & Market Trends : The Epic American Credit and Bond Bubble Laboratory
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To: mishedlo who wrote (66551)7/21/2006 2:08:44 AM
From: bond_bubble  Read Replies (3) of 110194
 
Just one more thing that might prove my case. In 1929, after the stock market crash, Fed lowered the interest rate and the stocks recouped 75% of the losses by 1930. That tells you assets reflate if the rate is lowered in time doesnt it? Also, in 1931, inspite of credit deflation by bank failures, Fed increased the interest rate to defend the dollar!! And actually, the depression started only in 1931. Did it not? Does that not tell you, inspite of credit deflation, interest rate (Fed rate) can go high. Which is what I'm expecting. I never understood why all the fed research pointed to 1928 interest rate hike as cause of failure. The stock market regained in 1930. So, the real culprit of the depression was interest rate hike in 1931 (to defend the dollar)!! I believe we are in 1931 scenario. Hence rate will go high to defend the dollar from commodity inflation. The systemic risk happened only in 1931 and not in 1929. The stock market crash was not at all a significant event. It was the credit market crash which caused the depression!! And it was caused by rise in interest rates in US (in 1931) and in Japan (in 1991). Ofcourse, interest rates fall in both countries after some years. But it was late by then... I do agree that if all past credits are liquidated, Fed rate can fall to 0%. But, such a credit deflation means SS, Medicare defaults as well...
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