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Strategies & Market Trends : Currencies and the Global Capital Markets -- Ignore unavailable to you. Want to Upgrade?

To: Henry Volquardsen who wrote (1805)	6/16/1999 10:38:00 PM
From: Freedom Fighter	Read Replies (1) \| Respond to of 3536

Henry, I agree with your reasoning if you are trying to get at the income and savings decisions from wages and the like. Your version tells us much more and is very useful. I also like to look at the economy from a savings and investment perspective. I'm not sure many people view it like that, but I do because it serves several purposes. I like to look at the total net credit growth in the economy annually and try to determine how it is being funded. So the actual saving amount tells me more because the taxes are transferred to the government and lessen its need to borrow. Investment (and the resultant economic growth) that is funded from savings isn't inflationary. Investment that is funded from new bank credit (increases in money supply) will cause prices to be higher than they would otherwise be (notice I didn't say inflationary). If you look at the total net credit growth over the last few years a high percentage was funded by domestic savings, the recycled current account money (foreign savings) and profits from insurance cos. that buy bonds etc.. The money supply growth was not very high. Hence we could grow rapidly without much inflation. Sarting in 1997 and accelerating in 1998 credit growth took off while the personal savings available dropped through the floor. IMO that's why the money supply (M3) accelerated rapidly. There wasn't enough savings to accommodate rising demand for capital and shrinking supply. This way of viewing the world is why I am preoccupied with the current account recycle and foreign inflows. Assuming the current account deficit wasn't there, or foreigners no longer wanted to accumulate dollars at the same pace there would be even less savings available. So to keep investment humming and therefore economic growth at the same pace we would have to print even more money. Not a very good idea and probably not sustainable. Most likely we wouldn't print that much. Either the economy and credit demands would slow or real rates would rise to get us back to balance. Along with the many things you talked about in a prior post, I think the recycle of foreign savings has been a key in many ways to the bull market and the rapid growth without inflation. I suspect that the current situation is causing imbalances that are not yet apparent. Wayne