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To: Tommaso who wrote (88777)	3/18/2001 12:45:29 PM
From: Hawkmoon	Read Replies (3) \| Respond to of 95453

Excuse me... maybe I'm being an idiot here, but I fail to see where money market accounts which, to my understanding, act as a default deposit savings account, and debt instruments like bonds. And yes.. my example was an extreme either or, but my point was to show that when no one wants to hold equities or bonds, they park their money in liquid money market accounts where they can be readily deployed once the depositor either feel safe enough to purchase other assets, or cannot receive an acceptable rate of return from interest on that MM account. In periods of deflation the best asset to hold is cash, because prices will decline as the economy contracts, and purchasing power will increase. Right now we see equities declining in value while the dollar increases as demand for cash rises. Thus the purchasing power of cash to equities is increasing. Eventually this situation will reverse and holding cash will become less desirable that purchasing discounted assets like stocks which will reinflate as the economy turns around. And if the economy fails to turn around all of that 401K and IRA money will go into money market accounts raising the level of MZM drawing market interest rates. And for many 401K holders, who's employers match their contribution by 50-100%, they stand to receive still significant benefits from contributing to their retirement plans. And deflation in prices increase the value of the dollar, which bodes VERY poorly for gold. Why would I hold gold when I know that prices are decling and if I continue to hold cash, I'll be able to purchase those assets at a significant discount to what they were originally purchased at? And I would disagree with your definition of the supply of credit being equal to the supply of money, although certainly in correlation. Again, we have only to look at Japan. They are currently paying little, or no interest on deposits totalling a reported $12 Trillion. They pay out 1% or less to the depositors, and then take the proceeds and invest them in US debt instruments where they can receive 5%. They are not extending loans to any major degree, and they have sizable non-performing debt portfolios. Yet the Japanese people continue to accept receiving a mere 1% rate of return so long as deflation exists and their purchasing power rises relative to consumer prices. And the Japanese banks have kept their heads above water by working the spread between what they receive in interest payments on US debt and currency fluctuations, and what they pay their own people. So here's where the rubber hits the road... If the US dollar is increasing vis-a-vis the Yen, for the Japanese to sell dollar denominated assets would be stupid. They would convert a rising currency into one that is declining in value, thus loosing money and increasting the debt load. They should own whatever dollars denominated asset they can, then devalue the yen. Once the devaluation takes place, it would THEN make sense to sell dollar denominated assets and convert to them to yen. Regards, Ron