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

To: BGR who wrote (71423)	12/3/1999 7:02:00 PM
From: Freedom Fighter	Read Replies (1) \| Respond to of 132070

BGR, >>And how do you measure (please, note the emphasis) the needs of economic activity?<< That's the $64,000 question! In part, the difficulty in answering it makes the case against the Federal Reserve to begin with. If new money came into the system as a result of productive economic activity, it is more likely that interest rates, savings, investment, assets prices etc... would remain in close to free market equilibrium. We do not have that situation though. We have fiat banking. Banks lend money created out of thin air and the Fed provides the reserves to do it. So lending and money creation is NOT the result of free market relationships between savings, investment, GDP growth and other variables. It is the result of what AG.com believes is the correct rate of interest. Therefore, there is a virtually unlimited supply of capital if capitalists/consumers think borrowing is a good deal at that rate. It is the view of many people that this sort of thing can manifest itself in economic imbalances other than increasing CPI. For one thing it is stimulative. So profits rise for the good, the bad and the ugly. This causes further economic miscalculation. Here are some other possible manifestations. 1. A current account deficit 2. Real estate prices that are not supported by cash flows. 3. Stock prices that are not supported by earnings. 4. Overcapacity is some areas 5. Declining savings 6. Bond market leverage 7. Other economic mismatches The issue then becomes that the Fed and Wall St. are paying a lot of attention to just the CPI to measure the health of the economy. This is a bogus number calculated by an entity (government) that has a vested interest in keeping the number low due to entitlement spending growth being tied to it and taxation (bracket creep) also related. Obviously there are a lot of flaws in the system and the current mandate of the Fed. IMHO AG.com has screwed things up big time. Wayne

To: BGR who wrote (71423)	12/4/1999 9:40:00 AM
From: Mike M2	Read Replies (1) \| Respond to of 132070

BGR, very simple watch the trends in credit growth in relation to GDP. When the credit expansion has a reduced impact on GDP growth it reveals that the credit is being diverted away from productive enterprise into financing speculation in securities or real estate. Currently we have unprecedented credit expansion and unprecedented valuations in the stock market. I know you like numbers so here is some historical data on the bank credit required to generate a dollar of GDP 1921-3 0.33 ; 1925-9 0.62 ; 1926-9 1.00 now another source I have notes that in 1929 there was $2 of credit created for every dollar of GDP. Moving to the post war boom 1949-53 0.26 , 1954-7 , 0.32 1958-60 .26 1960-5 0.60 . For more historic perspective 1953-80 1.35; 1980-1.37 ; 1990 1.83; 1998 2.92 ; IN 4Q98 we hit an amazing FIVE- . No one suggests that there is a precise magic formula but the trends reveal an obvious correlation with credit growth and speculation in financial markets. The trends lead to TL & EV . One other ting ho ho ho ! Mike