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

To: Tommaso who wrote (82766)	8/8/2000 5:15:35 PM
From: pater tenebrarum	Read Replies (1) \| Respond to of 132070

T, admittedly the money supply growth rate came down a bit in June...but we're far from 'tight'. all the M2 growth rate has done was poke its head inside the target range for the first time in years, surely a temporary aberration. the Greenspan Fed stands ready to print at the drop of a hat...no particular reasons are necessarily needed. look at a long term chart of broader M3 - the trajectory it embarked upon at the beginning of the bubble in '95 is still the same. over the past 24 months it has grown by 19%. Noland reports that commercial paper outstanding grew by an annualized rate of 39% over the last four weeks. these are hardly signs of a tight monetary environment...consumer credit also grows unabated. note, the REAL Fed funds rate has remained unch. for quite some time now - as inflation (even the kind reported by the govt.) has accelerated to the point of canceling out all the rate increases that have taken place. in fact,depending on how big the understatement of inflation really is, real rates may well be negative by now. my reference to a 'natural limit' has simply to do with the fact that credit in the economy has been growing much faster than the economy itself for years now...and still is. in fact, as GDP growth rates are also grossly overstated by the hedonic adjustment of computer hardware investment growth, the gap between credit and economic growth may be even wider than is commonly thought. the natural limit is reached when debt and interest repayments become too large to be borne by underlying cash flows, or rather, when the debt burden is perceived to become too onerous from the borrowers PoV. in terms of households a debt repayment burden in the area of 14-15% of disposable income is the historical limit as far as i know (last seen in '87, and now...we're close to 14%). in conclusion, should money supply growth indeed decelerate from here, i suspect it won't be a result of the Fed tapping on the brakes - it will be a result of the debt & leverage pyramid in the economy having grown too large. i am btw. not in favor of a CB trying to fight the price deflation that should result from productivity growth by endlessly expanding the supply of money, as an ever more overleveraged and inherently instable financial system results from this. that was precisely the nature of previous bubbles in disinflationary productivity booms...and they usually burst and bring on a deflation that is not benign. the latest victim of such a boom gone astray is of course Japan.... in the meantime we are confronted by a cyclical inflation upturn as a result of the temporary synchronization of global economic growth. but i believe both the synchronization of growth and the inflation upturn will give way to the secular disinflation/deflation trend again in due course. already South East Asian currencies are under enormous pressure once again...with the Thai baht in the lead. essentially the bad debt problems in countries that have already experienced a crisis remain unsolved, as are the structural problems that were brought to light during the crisis. in the meantime countries that have escaped the crisis have done so by inflating their own private sector debt enormously. and while the US economy is structurally more sound in terms of its regulatory framework than most Asian economies, the credit expansion is extremely unsound, and the longer the credit boom is perpetuated, the more unsound it becomes. i am quite perplexed at the recent equanimity with which the growing imbalances are viewed by FOMC members. since you mentioned the enormous current account deficit, i had a good laugh when Greenjeans opined that it doesn't matter as long as corresponding inflows keep the capital account flush. well, wasn't that exactly what South East Asia showed us, the capital account inflows can turn on a dime, it can all be gone within days...it takes years to turn around a giant current account deficit however. sorry to hear about your greedy plumber... hb

To: Tommaso who wrote (82766)	8/8/2000 5:43:27 PM
From: Skeeter Bug	Respond to of 132070

>>skewed, I would admit, by creative interpretation and too much emphasis on electronic efficiencies<< tom, there are no efficiencies to exagerate. any efficiencies are included in gdp. the statistical game adds what does not exist. that is the issue.