SI
SI
discoversearch

We've detected that you're using an ad content blocking browser plug-in or feature. Ads provide a critical source of revenue to the continued operation of Silicon Investor.  We ask that you disable ad blocking while on Silicon Investor in the best interests of our community.  If you are not using an ad blocker but are still receiving this message, make sure your browser's tracking protection is set to the 'standard' level.
Strategies & Market Trends : New US Economy Policy
 Public ReplyPrvt ReplyMark as Last ReadFilePrevious 10Next 10PreviousNext  
To: Arthur Tang who wrote (79)11/17/1997 7:57:00 AM
From: Arthur Tang   of 435
 
Where does liquidity in the new economy come from?

Liquidity provision in the new economy fuel the new economy. Tighten liquidity and the new economy will shrink. The new economy is planned by productivity and capacity increase. Labor is supplied by automation rather than manual labor. All the increases are not all provided by savings and profits. Instead the profits and savings provided the bank reserves for regulation by the central bank. Total deposits then qualify for certain multiples allowed by central bank to borrow at over night discount rate. The multiple factor allows central bank to expand or contract in monetary policy. Gold and silver backed currencies are too limiting for new economies. Therefore the liquidity in economy is provided by bank loans.

It is interesting to note that the American economy of $8 trillion dollars is about the same amount as the total overnight loans FEDS gave to all the member banks. However, recently more and more businesses are borrowing from foreign banks which offer lower bank loans (6.44% vs. 9.0% prime rate in America). So, the economy in America could be closer to $10 trillion soon. Check the total bank loans by businesses in America, and you have the first order of magnitude of the new economy.

This year, FEDS' increase of 25 basis points of overnight discount rate took out from American banks $10 billion in half a year. In a full year, the total will be $20 billion. Then allowing the multiple factor FEDS allow overnight loans, the total liquidity tightening is $200 billion from March 1997 to March 1998. The new economy is under sever strain. First and above all, the automobiles (large loans) are no longer selling well. Restuarents, and high end electronic straight discounters closed a few months before the auto dealers.

And yet Greenspan still refuses to admit he is wrong; to pre-emptively strike against the new economy, to destroy it single handedly.
Report TOU ViolationShare This Post
 Public ReplyPrvt ReplyMark as Last ReadFilePrevious 10Next 10PreviousNext  

HomeMailHotSubjectMarksPeopleMarksKeepersSettings
Terms Of UseContact UsCopyright/IP PolicyPrivacy PolicyAbout UsFAQAdvertise on SI
© 2025 Knight Sac Media.  Data provided by Twelve Data, Alpha Vantage, and CityFALCON News