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To: BGR who wrote (65586)	10/1/1999 7:39:00 AM
From: pater tenebrarum	Read Replies (1) \| Respond to of 86076

BGR, that was more or less the argument i threw out to LUC earlier...that the Fed's ability to print money at will stands ready to cushion any big fall in the market. it would seem from this that the bulls have nothing to fear anymore...however, that is not entirely true. one of the things that happens is that the moral hazard introduced by this view leads to investors taking on more risk than they otherwise would have, which creates imbalances in the system and basically leads to misallocation of capital. what happens next is a kind of pyramid scheme being built up with ever more credit needed to sustain economic growth (currently $5,20 in credit are needed for every $1 in GDP) and corporations taking on ever more debt to keep their shares afloat via buy-backs(the U.S. version of the Japanese zaitechu). it all works well as long as confidence in the system is steadfast and stock prices keep on going up. but as Japan has found, the lax standards employed by creditors in the course of a bubble can lead to utter destruction of confidence once a bubble bursts and create a liquidity trap. while the BoJ pushed rates to zero in the wake of Japans bubble bursting, the credit intermediaries(banks mostly) did not proceed to extend new credit in spite of the liquidity provided - it's the 'pushing on a string' analogy. instead they moved to bolster their capital as the bad loans on their books began to mount. so the fiat currency system is NOT a guarantee that the bulls will be bailed out every time. to all, an interesting take on money supply: prudentbear.com sheds a new light on the money supply data...