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

To: Nadine Carroll who wrote (70678)	11/17/1999 4:54:00 PM
From: Tommaso	Read Replies (2) \| Respond to of 132070

I am not answering for Earlie, but I have certainly been wondering about that question for a long time. I think the answer is that, world-wide, there has been a tremendous increase in the output of goods (and in the USA of services as well) that have matched a lot of the increase in money. This has even included oil--when OPEC made their blinkered decision to raise output two years ago and then cheated on top of that. But a squeeze in energy supplies could have all sorts of deranging economic effects--raising costs of production, changing the US trade balance from merely appalling to catastrophic, causing depression and inflation simultaneously as people were put out of work but goods became scarcer. And the US has not made a single move towards finding energy sources to replace oil. We just keep shipping it in and burning it up, and shipping hundred dollar bills out (literally, as well as supposed bank balances in other countries). I think that great disasters inspire great remedies, but the disaster hasn't hit yet. We have stock prices more unrealistic than 1929 and people driving SUVs that are as preposterous as the automobiles of the late 1950s and early 1960s. At some point the rest of the world will stop letting us put it on that enormous credit card. But meantime, turkey is cheap and wine is better than ever and also cheap, so I hope to enjoy myself next week.

To: Nadine Carroll who wrote (70678)	11/18/1999 8:36:00 AM
From: Earlie	Read Replies (2) \| Respond to of 132070

Nadine: There are much brighter lights than I who can do a better job of answering this question, so I encourage other thread participants to add to the following comments. To begin with, one should question the inflation figures provided by the government. In a nutshell, they are misleading. The formula used to interpret inflation has been changed three times in as many years, each time in such a way as to minimize the apparent inflation. Notice the use of "less food and energy". What a joke. Hard to live without eating, and energy costs move into virtually every item we acquire. It would be impossible to list all the items that have moved up substantially in price over the last two years, so obviously the fact that the government figures don't mirror this should suggest something to all of us. After the Asian collapse, the only route back for virtually all of these unfortunate nations was to export to the only remaining consequential buyer of goods, namely the U.S. As their currencies had been ravaged, the cost of their goods in U.S. dollars was dramatically reduced. Fierce competition for the American buying dollar has kept prices of these goods down. This competition has also reduced the pricing power of American goods producers to nil. Exacerbating this situation is a continuing worldwide glut of manufacturing capacity in just about anything you can name. Much of this capacity is very modern and very efficient. Unfortunately, most of it also carts huge debt loads, which translates into continued production, even as prices tumble due to price wars (as each attempts to at least cover the carrying costs of their debts). Price wars are most intense in consumer goods, which keeps the apparent inflation in this area from really accelerating. As an aside, while many think that deflation and inflation are mutually exclusive, this is not true. We can be forced to endure both under certain circumstances. Central banks will always try to inflate their way past the deflationary cemetery, and Alan is certainly active on this front. Unfortunately, this very act does little other than postpone an increasingly ugly day of reckoning. In my judgement, that day is not far off. Best, Earlie

To: Nadine Carroll who wrote (70678)	11/18/1999 12:16:00 PM
From: Mike M2	Read Replies (1) \| Respond to of 132070

Nadine, there was a time when the term inflation meant a decline in the value of money. todays political economists tell us that inflation is a rise in the general price level as measure by the cpi and ppi. The Austrian school of economics defines inflation as an increase in money and credit beyond the needs of economic growth and the supply of available savings. This is what the Nobel prize wiinning Austrian economist had to say about inflation: " The influx of the additional money into the system always takes place at some particular point. Who these people are will depend on the particular manner in which the increase of the money stream is being brought about. It may be spent in the first instance by government on public works, or it may be spent by investors mobilzing cash balances or borrowing for the purpose; it may be spent in the first instance on securities, on investment goods, on wages or on consumer goods. It will then be spent on something else by the first recipients of the additional expenditure, and so on. The inflation process will take very different forms according to the initial source or sources of the additional money stream" F.A. Hayek Can We Still Avoid Inflation quoted in the May 99 issue of the Richebacher Letter 1217 st. Paul St. Baltimore, MD 21202 We have not seen product price inflation because the inflation has been directed at financial assets. Companies have decided to go on a buying binge purchasing their own shares rather than expand their business or invest in productive capacity. In addition, as noted by Earlie the US trade deficit has enabled us to import real goods and deflation to offset the inflationary pressures of the US consumption binge fueled by debt and the wealth effect of the stock market. Another major factor in this unprecedented credit bubble has been deregulation in the banking sector and financial world. For details read Peter Warburton's Debt and Delusion and Edward Chancellors The Devil Take the Hindmost . A very short summary is after the banking sector was decimated by the real estate bust the capital markets took up the slack. Nonbank sources of credit are not captured in the monetary aggregates and are beyond the control of the Federal Reserve. There is an inverse relationship between the quantity of credit created and the quality - a very obvious point that credit originators periodically forget in a big way but that is the moral hazard created by gov't guarantees. I once was foolish enough to believe that at some point the people in power would attempt to check the speculation but the most important lesson to be learned is that greed takes control. Alan Greenspan is well aware of the austrian perspective and knows very well the bust of the credit boom is inevitable. I expected too much from a politician. mike