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

To: BGR who wrote (71375)	12/3/1999 10:33:00 AM
From: Mike M2	Read Replies (2) \| Respond to of 132070

BGR, there is rampant inflation in the financial markets. Inflation is the expansion of money and credit beyond the needs of economic activity and the supply of available savings. This monetary inflation may manifest itself in product prices or in the financial markets and trade deficits. People scream where the price of things rise because they pay more and get less- well buy GE you pay more and get less dividend but people are happy because the price rises because they are not aware of the accumulated illiquidity in the markets. Cash balances as a % of securities outstanding were at a record low several? years ago. I'm sure the situation is worse. To understand the full picture you need to look at the unprecedented reckless expansion of credit. Why does this matter? Because this debt must be serviced. As credit expands a greater proportion of current income must go to service this debt- curtailing your beloved Keynesean consumption . In order to maintain the stimulative effect credit must expand at an ever increasing rate. if this process is allowed to go to the limits which seems to be the current Fed policy eventually we get deflation -a contraction in credit along with severe TL & EV. This is not a difficult concept - consider your own balance sheet what if you assume debt at a rate faster than your income growth what would happen? You would at some point decide to reduce consumption and service the debt or go broke . Either outcome is deflationary . government debt can be monetized but not private debt where the current excesses are. The Fed may very well have plans for the banking system to purchase bad non bank debt when the time is necessary to delay the inevitable. it boggles my mind how people can be deluded into thinking debt is a panacea. Mike ho ho ho

To: BGR who wrote (71375)	12/3/1999 11:00:00 AM
From: Earlie	Read Replies (2) \| Respond to of 132070

BGR: The only place I hear "the THREAT of inflation" discussed as a reason for rising bond yields is on bubblevision. I talk to some quality "bond boys" almost every day. Much more important thoughts are put forward. - an historic trade deficit and the obvious implications for the buck (and all things denominated therein). - Ditto the current account deficit. - Looking for a REAL "new era"? How about net selling of treasuries by the offshore central banks, now into its second year and rising. Japan has been almost in "dump" mode in this regard, and one can hardly blame them or anybody else for quietly ridding themselves of what is becoming a tidal wave of increasingly less valuable paper. - Checked out corporate debt levels lately? This is where corporate America has really experienced "exponential growth". - Do rising interest rates ever do anything other than shrivel profitability? Can interest rates possibly fall when the U.S. must maintain a substantial interest rate differential to keep the ocean of treasury paper from washing back home (and Europe nudged rates up 1/2% a few weeks ago). They think Alan's choices relate more to how much and how fast rather than whether to raise interest rates. - Money printing and money velocity running at historic levels. The government can't see any inflation, but unfortunately the "Bond Vigilantes" as well as any person who buys anything knows that inflation is alive and well right across the nation. They also know that Big Al is fighting a desperate battle against a spreading global deflationary wave with the only weapon he has, which is the creation of powerful inflation. "A rose by any other name,..." etc. They have a much longer list, but the above tends to include some of their imperatives. Bonds are really IOUs,....a "promise to repay". Both the shrinking probability that such repayment will occur, as well as the possibility that said repayment may well be made in a crumbling currency seems to have their attention. There are the quick (sellers) and there are the dead. (g) Best, Earlie

To: BGR who wrote (71375)	12/3/1999 12:30:00 PM
From: pater tenebrarum	Read Replies (2) \| Respond to of 132070

BGR, we are actually in a pretty strong cyclical upturn of inflation...the classical interpretation of inflation is the increase in money supply over and above the needs of the economy, and we've had that in spades. as you may or may not know, the Economic Cycle Research Bureau's future inflation gauge just hit a fresh four-year high. contrary to the government this institution is not 'massaging' it's data. since we have had a period of strong economic growth with inflation channeled mainly into asset prices, a period of recession with inflation in goods and services prices is not out of the question (stagflation). however, i believe that ultimately once the bubble bursts, we will see a deflationary depression not unlike the 1930's. this seems inevitable in view of the massive overhang of private debt. the Fed has given us a long boom at the price of ensuring utter devastation down the road. hb