To: Activatecard who wrote (7015 ) 7/28/2000 9:13:08 PM From: pater tenebrarum Respond to you are of course right...in fact the actions of the Fed and the path the credit expansion has so far followed all suggest that this option was never seriously under consideration.natural limit. and there are clearly signs that said limit may be near, if it hasn't been reached already. following are the signs: 1. inverted yield curve (makes the borrow short/lend long trade unprofitable) 2.widening credit spreads - indicate an increase in default risk being priced in (in fact defaults in junk bonds have eclipsed new issuance so far this year) 3. the percentage of disposable household income that is used for servicing of debt has recently reached 13,6%. the all time high was reached shortly before the '87 BK at 14%. 4. the traditional purveyors of credit during the expansion have recently been replaced by other entities that have taken up the slack. this may be the most damning piece of evidence yet. from a recent piece by Ed Bugos: <<One by one, the traditional sources of cheap credit for this paper mania have shut down. First, the yen carry trade, then the FED, then the gold carry trade, all in 1999. So far this year, the creative Euro carry trade, then the yield curve, and then the Government Sponsored Enterprises (Fannie Mae and Freddie Mac), have had their credit creating abilities shut down on them, so to speak. Now, all that is left for sources of ever more credit creation is the banking system, the finance companies, and the brokerage industry. Perhaps the brokerage industry should start snapping up these finance companies to create a synergy on the debt collection front (just kidding, I think). Anyhow, collapsing stock prices on a dearth of financial market liquidity will likely put an end to further credit creation, at least in its stimulative effects.>>
