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Politics : Ask Michael Burke -- Ignore unavailable to you. Want to Upgrade?

To: BGR who wrote (62622)	6/17/1999 10:06:00 AM
From: Freedom Fighter	Read Replies (1) \| Respond to of 132070

BGR, If you look at the net credit growth annually (including government, consumer, and non financial business) and then compare that to personal savings you see that we are more dependent on the recycled current account deficit and monetary growth to keep the economy going than we were just a few years ago. The current account recycle (desire for USD) is by no means a guarantee and M3 can't keep growing at the rapid pace of 98/99 without some negative effect. I am not in the mainstream with the following point of view but I'll express it anyway. I'd rather not debate it though because I don't see a way to prove either side of it and it's just too long a debate anyway. I don't think a country can really have too much savings. I think there is a relationship between savings and investment and the cost of capital and its return that keeps an economy in balance. I think those countries that appear to have too much savings are really suffering from overcapacity and malinvestment related to prior credit expansion that did not come from savings. In other words, all sorts of projects were undertaken that appeared profitable at the prevailing artificial interest rate. Those projects get exposed later and as savings rise there's few places that are profitable enough to invest it wisely. It is rarely taken to an extreme though. The capitalist system is very strong so the mis-calculations are absorbed and you can still grow. If they start getting out of hand it usually shows up as CPI inflation, so they are short-circuited by the Fed . We have a recession and the passage of time makes those projects useful and on we go. On rare occasions like US 30s and Japan 80s they get out of hand because there is no apparent CPI inflation but tons of credit inflation. Wayne