To: Shack who wrote (1250 ) 3/17/2001 11:50:27 PM From: Davy Crockett Read Replies (3) | Respond to msnbc.com If I were the head of the Bank of Japan, I’d charter every helicopter I could get my hands on, fill them with money, and dump the cash over downtown Tokyo, starting tonight. That economy has simply got to be reflated somehow. We are at a critical juncture ...and signs are now emerging that the financial system could face an enormous liquidity crisis that some experts fear could break out at any moment iht.com In such an atmosphere, the little people of America, egged on by Wall Street's hired optimists, wrote blank checks to indulge the giddy fantasies of high-tech entrepreneurs. In the early stages this sparked robust expansion and innovation among software, computer, telecommunications, biotechnology, semiconductor and fiber optic companies. To many New Economy gurus, the pot of gold from Wall Street seemed fully justified and certain proof of their own genius. There are no more blank cheques anymore...just rubber ones that bounce.economist.com That is not to claim that American firms and banks have been as prudent as they should have been. Far from it. There has been a clear deterioration in the quality of lending and default rates are at their highest since the last recession. Many companies have taken on huge amounts of debt. & what happens when they can no longer service that debt? gold-eagle.com To increase M3 growth is more expensive for the economy than to increase M1. Low long term rates are quite favorable for housing and other long term investments, yet they are actually not cheap money for the short term borrowing requirements of companies. As long as the economy grew very fast this has not been a big issue for many companies. Now as the economic climate through high costs and lower demand squeezes companies profit margins, the high short term rates are a big burden for many companies to regain their liquidity. The Fed very likely will wait too long for lowering short interest rates as it waits until its strategy is working once again. Many companies will fail and thus many jobs will disappear. The readjustment of the economy will be for this reason quite disruptive for the US economy. After this adjustment the Fed will be forced to increase M1 and to print cheaper money to rebalance the economy nationalpost.com "The current situation is beginning to look more like the 1998 financial crisis, with equity prices melting and global financial strains building," the Montreal group said yesterday. "So far there has not been a credit market seize-up, but the lesson from 1998 is that disorderly markets can spark one." So far, the Fed's lowering of interest rates and concurrent accommodation in allowing quite significant money supply expansion is having little effect on reported consumer confidence and consumer spending. Likewise, the stock market is weakening and commodity prices are softening. The excess liquidity is not finding its way into the real economy or the financial markets. Where else could it be going? To delever in terms of cash flow liabilities contraryinvestor.com In its 2000 annual report, the telecommunications equipment maker said the shortage of venture capital and bank credit for startups may force Nortel to provide an increased amount of financing to customers over longer terms. nationalpost.com
