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

To: yard_man who wrote (69859)	11/1/1999 9:50:00 AM
From: Mike M2	Read Replies (3) \| Respond to of 132070

To all, trick or treat? perhaps some tough love! : great article gold-eagle.com Herein lies the crux. The cost suppressant effects of the Internet have been a sideshow. What has happened, in archetypal fashion, is that the market rate of interest (set by the whole credit pyramid of central banks, financial institutions and hedge funds) has clearly deviated from the natural rate of interest. The cost of carry on all these investments may be positive at the moment, but they will prove loss-making at worst, sub-optimal at best, when the credit expansion runs its course, as inevitably it must. Greenspan himself fails to see that what he calls the capital investment 'boom' ('there is no better word') sits ill with consumer demand which he admits has accelerated so much that it is above even his 'productivity-enhanced growth of potential'. Without the rapid expansion of money which the Fed has entrained, increased consumption would be squeezing out investment, not fostering it. Only foregoing consumption of present goods in favour of future ones can provide a solid foundation for lasting capital and wealth creation. But then, Greenspan does not seem to realize this, subject as he is to the old Keynesian shibboleth that savings are distasteful, or so we must infer if we are to make any sense out his proposition that 'unless the propensity to spend out of real incomes falls, consumption and investment growth will rise' Of course, the Chairman is confident he will have to avoid doing the difficult thing to arrest any of his famous 'imbalances'. The market is, allegedly, already short-circuiting itself as real long-term rates rise. This benign, automatic stabilizer is coming into effect as the result of an 'increasing demand for financing capital goods relative to domestic savings'. Naturally, no-one is borrowing for anything less worthy are they? Like the $305 billion of debt substitution for corporate equity to massage returns in the last four quarters, or the issuance of 24% more auto-loan backed bonds in H1 1999 over the year earlier period, or the 10% more credit card receivables floated, or the 30% more MBS and 23.4% more long-term Agencies served up to fuel the real estate land grab? Greenspan continually emphasis the role of the new technologies in improving information gathering and forecasting, promoting efficiencies and hence the potential for the economy to grow sustainably faster. What goes unsaid is that the greatest information void, the most portentous distortion of the all-important price mechanism, the most damaging obfuscation of market-given consumer preferences all still persist as they did seventy years ago ? that is to say that the Fed is debasing the currency, artificially depressing interest rates and pumping air into the credit balloon and so is presiding over an unprecedented raft of malinvestments. This cannot end well, as even Cleveland Fed President Jerry Jordan admitted in a recent speech in which he reflected on the failed experiment of fiat currencies. Let's see what Lou Gerstner has to say when his re-engineered, more leveraged, corporate Titanic threads its way through the icy seas of monetary disruption sometime in the near future. Sean Corrigan 2 November 1999