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Non-Tech : Tulipomania Blowoff Contest: Why and When will it end? -- Ignore unavailable to you. Want to Upgrade?

To: KyrosL who wrote (2246)	12/26/1999 12:57:00 PM
From: Dale Baker	Respond to of 3543

When I read the bears on SI moaning about the huge increase in money supply and the eventual return of inflation, I laugh. Inflation, IMO, is the least of our concerns: the internet is a deflationary tsunami. What he said. Well done.

To: KyrosL who wrote (2246)	12/26/1999 7:29:00 PM
From: yard_man	Respond to of 3543

inflation -- rampant growth of the money supply far beyond the pace in the growth of the real economy -- has already happened longer term I think you are right that the risks are of a prolonged deflationary period. Do you think there are natural limits to the growth of the relative portion of the services component of the economy versus the "real goods?" You mention banking, insurance, travel -- but all that is different is the medium through which the transaction takes place. There has been no revolution in flight travel -- the way insurance is structured or the fundamental way in which banking is done. Access to more information may mean keener competition, but I don't see it guaranteed by the internet. Before the internet I had the option of going to yellow pages to shop for a competitive rate for a loan, a savings account or my insurance. For these financial services that you mention the larger impact I see is the regulation imposed or not imposed. As far as the transmission of e-mail and associated content -- of course it is not free. Telcos have grossly overcharged for years for POTS and other services, honestly they owe us free e-mail forever in my book. But back to your idea that the internet is a powerful deflationary force -- I think the internet is simply the culmination of several computing and communication technologies which have seen rapidly declining prices per unit of service provided. This ability to move information at lower and lower per-unit cost was there before the internet and will probably continue after the internet is gone ... this is the source -- not the internet. Transacting certain kinds of business over the internet is a novelty right now. I know it is boring to say so, but most of these e-tailers will not survive -- the ones that do will not exist in their present form. They will simply be a combination. Don't be surprised if the winner in e-tail is a Walmart or a Costco or someone else. The electronic flea market will survive and the internet will be a place to compare prices for a long time, but these aren't going to tranform our economy ... I go back to my original question: Do you think there are natural limits to the growth of the relative portion of the services component of the economy versus the "real goods?"

To: KyrosL who wrote (2246)	12/27/1999 6:08:00 PM
From: pater tenebrarum	Read Replies (2) \| Respond to of 3543

KL, agree with you that the secular trend is still towards deflation, not inflation. we have a nascent cyclical upturn in U.S. inflation which is partly due to the money supply growth the bears are moaning about and partly due to asset inflation beginning to spill over into the real economy (just imo). however, if the Fed continues to raise rates in order to dampen this nascent cyclical upturn in inflation it will merely help to exacerbate the secular deflationary trend. the internet undoubtedly plays a big role in speeding the trend up as well. however, let's make one thing clear: the main complaint the bears have with regards to the money supply explosion is not it's effect on inflation. it's the debt spiral that seems to get out of control that captures the bearish imagination. credit creation in the U.S. is growing at an unprecedented pace...both corporations and consumers haven't been as leveraged since the times of the depression. which is why i agree with impristine's scenario of an eventual Japanese-style resolution to the asset bubble. while i have no idea as to when the bubble will pop, i have no doubt that it will pop eventually, and when that time comes what will be left is the side of the ledger that's generally ignored in the current boom, namely a mountain of debt. an increasing share of that mountain can be found as assets on U.S. bank balance sheets...so far the Fed has countered every moment of crisis that has befallen the financial markets in recent years with liquefying the banking system (i.e., by printing money). one day the crisis will come where that old trick doesn't work anymore, because the banks will have too many non-performing loans on their books. we're not there yet, but we'll be getting there. regards, hb