To: Les H who wrote (15776 ) 9/3/2000 2:51:36 AM From: patron_anejo_por_favor Read Replies (2) | Respond to Another mighty blast from Doug Noland in "The Credit Bubble Bulletin": prudentbear.com On the Manipulation of Money and Credit , and a lengthy discussion on the extent of the current credit/equity/real estate bubbles and the possible sources of their demise. Must read for bears, even more important read for bulls. This passage is especially powerful and germane:And while Dr. Kellner’s analysis is seemingly straightforward and reasonable, it actually goes right to the heart of a momentous flaw in current economic thinking. Ludwig von Mises would be aghast. In the past we have emphasized how monetary inflation generally manifests into three forms: consumer goods and services inflation, rising asset prices and trade deficits. Unfortunately, current thinking looks askance at only rising consumer prices, while trumpeting the virtues of the rising asset prices and imports. We, however, subscribe to the brilliant analysis of Dr. Kurt Richebacher, who states that consumer price inflation is the least dangerous form of credit inflation as it is easily rectified by strong monetary tightening from the central bank. Moreover, it is most critical to recognize that asset inflation is powerfully seductive (Larry Kudlow, Dr. Kellner and many of the bulls mistakenly view asset inflation as “wealth creation”!) and of much greater danger to the soundness of an economy and stability of its financial system. With asset inflation having a broad and determined constituency including the general public, bankers, Wall Street, corporate America and politicians, the resulting damage is allowed to unfold over long periods, while hardly even garnering the attention of central bankers. As such, this week’s report that spending expanded at double the rate of income growth, while the savings rate went negative, is clear evidence of asset inflation fostering a severely dysfunctional economic and financial environment. Yet, current bullish “New Paradigm” thinking has turned sound analysis on its head. Instead of understanding that a negative savings rate is indicative of a severely distorted bubble economy, the bullish consensus sees the continued borrowing and spending binge as evidence of a sound and stable prosperity. It is this momentous gap between the perceived supreme health of the current environment and the actual reality of massive financial and economic imbalances that is disturbingly reminiscent of the bubbles of 1929 in the U.S., 1989 in Japan, and 1996 in SE Asia.
