To: Tommaso who wrote (76913 ) 3/3/2000 10:26:00 AM From: Mike M2 Read Replies (2) | Respond to
Tommasso, the following is quoted from The Richebacher Letter Feb. 2000 " ... Most of the new credit is now manufactured outside the banking system ( by the securities markets and by so-called nonbank lenders, of which there are three major groups: so-called Government Sponsored Enterprises, Federally Related Mortgage Pools and Issuers of Asset-Backed Securities ( see Flow of Funds Accounts, federal Reserve) ... With this stunning expansion of their financing activity, they have essentially developed into the leading propagators of the American credit bubble. but what, really, is the essence of their activity? In brief: they provide the system with virtually unlimited financial leverage. Instead of lending directly to consumers or businesses, they securitze or buy all kinds of securitized loans, in particular mortgages, from original lenders. In so far, it may seem that their activity involves no repercussion in the economy. Nor, by the way, does the borrowing and lending of these intermediaries ( unlike bank credit) increase the money supply. for this and other reasons, their runaway expansion is attracting very little or no attention at all. so what is the problem? As said earlier, these institutions provide virtually unlimited leverage to the financial system. They do so by taking over loans from banks and other lenders. as the balance sheets of these lenders are correspondingly reduced, they gain new lending power. evidently, this increases the credit- creating power of the financial system as a whole. in fact, any limiting factor to credit creation in America has been abolished because these non-bank intermediaries do not depend on the Fed for their liquidity reserves. Their effective liquidity reserve is vast, total money supply which they tap through the money market to finance their holdings of credit paper. In the final analysis, their activity boils down to a more intensive use of bank deposits in the existing money supply. but we stress the decisive point most emphatically: for the effect of credit on the economy or the financial markets. it does not at all matter whether it comes from banks, non- banks or the securities markets. The one and only thing that makes all the difference from a macro perspective are available savings." The Richebacher Letter 1217 St. Paul St. Baltimore, MD 21202 My note non bank credit increases money velocity not money supply and tommasso you had a typo it was the Weimar republic came after WWI not II . I'm sure you knew that -the corrections is for the lurkers. mike
