Graham and Doddsville -- Value Investing In The New Era Message Board

STOCKTALK

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 : Graham and Doddsville -- Value Investing In The New Era

Public Reply Prvt Reply Mark as Last Read File

Previous 10 Next 10 Previous Next

To: porcupine --''''> who wrote (1326)	2/23/1999 11:49:00 AM
From: Freedom Fighter	Read Replies (3) of 1722

Porc, This is not a conversion attempt. Just a clarification for information purposes. Austrian theory does not predict doomsday as a result of central bank credit expansion. What is does say is that credit that does not come from savings but from bank fiat money creation causes mal-investment because of the economic miscalculation that results from non-free market levels of interest rates. This 'easy money' generally manifests itself in either CPI inflation, a trade deficit, asset prices that are rising more rapidly than output, and/or other mal-investments. There is no way of telling how it will manifest itself because there is no way of knowing where the credit will flow (other forces are at play too). Usually, a central bank, when confronted with these excesses, tightens money. This causes the excesses to be removed from the system and free market equilibrium to be achieved again. It can be very mild or very severe depending on the extent of the misallocation during the boom. In the U.S. and elsewhere, it has mostly been mild because central banks have generally been responsible. Japan on the other hand allowed the excesses to grow to larger levels. The consequences are therefore more severe. It is that extreme point when the system is faced with one of two alternatives. Bust or devalue (print money) significantly. The effects of a "true" bust are short and painful and have social and political costs. (We did not have a true bust in the 30s. There were numerous attempts at propping up the excesses and interfering with wages etc..) The effects of a devaluation (or money printing) are a loss of living standards and having foreigners come in and buy all your assets on the cheap. This too has social and political costs (perhaps worse - Germany for example) Japan allowed the extreme to occur and there are those that believe that the U.S is on the same path in the late 90s. That is, the Fed has ignored many troubling signs of mis-allocation and easy money because CPI is stable. That was exactly the rational in the 20s in the U.S. and Japan in the 80s for not tightening. Economic growth was robust and there was no CPI inflation. There were obviously problems though. Wayne

Report TOU Violation

Share This Post

Public Reply Prvt Reply Mark as Last Read File

Previous 10 Next 10 Previous Next