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Strategies & Market Trends : Booms, Busts, and Recoveries -- Ignore unavailable to you. Want to Upgrade?

To: Ilaine who wrote (4075)	5/31/2001 6:29:26 PM
From: pater tenebrarum	Read Replies (6) \| Respond to of 74559

you are right that other forces are at work - it's the GSEs, and the rest of the financial sector. but the point is that the Fed is an asymmetric accommodator of this financial excess. a monstrous bubble has been created in credit land, Dr. Richebacher calculates that last year every dollar of GDP growth was financed with 4.55 dollars in additional credit creation. that compares to the much tamer 30 cents in new credit for every dollar of GDP growth in the mid fifties. i hope you don't believe the Fed has no say in these things. it is precisely its willingness to err on the side of lower (way too low during the boom) rates , the bailing out of speculators at every turn and the refusal to adopt targets for the growth of monetary aggregates that has brought about the vast imbalances. all these data series, be it the current account, the savings rate, or the outstanding total credit market debt have to be seen in the context of their evolution over TIME. it doesn't matter if factories are included in the current account. after all, US companies also invest in factories abroad. what is important is that this measure has deteriorated at an alarming rate in recent years (the bubble years if you want) similar to the other measures mentioned. Noland's use of adjectives can't be strong enough imo. i'm not sure what you are trying to get at with the definition of the various Ms. - that makes the wild growth in these aggregates LESS alarming? the fact that the assets in M3 are backed by liabilities? that's really NOT the point. the point is that a huge private sector debt load has been created (the wild surge in the Ms is the mirror thereof)through lax monetary policy, leading to malinvestment on a grand scale (painfully obvious now with the collapse of the Nasdaq bubble and the persistent energy crisis) and a dangerously stretched system. the whole thing rests on the assumption that AL will print all problems away, which is in fact all he's been doing over the years. his analysis of the economic backdrop (which only ever serves to justify and when necessary to obfuscate his dangerous policies) fails to impress me. several of the myths he has previously propagated (starting with 'can't tell if it's a bubble' and the productivity story) are being debunked now that one part of the bubble (tech) has faltered. i have yet to hear his admission that it was a classic case of malinvestment - the telcos which have driven the tech boom are now all hopelessly drowning in debt, with absolutely NOTHING to show for their efforts in terms of profits. the whole tech sector has been transformed from incredible boom to a fight for survival in a matter of less than a year. the same thing will happen to the other sub-boomlets, real estate being the next bubble in the line of fire. all this could have been avoided - by allowing the market to decide the level of interest rates. the demand and supply of money would have properly regulated itself. the boom would have been more modest, and setbacks would have been more frequent, but the long term health of the economy would be unimpaired. instead we have a system constantly teetering on the brink of yet another crisis. unmentioned by Noland we have of course also the highly questionable statistical methodologies by which the govt. measures GDP, inflation and productivity. what i'm trying to convey is, the DEBT is measured in real dollars, no ifs and buts. but the underlying economy that is supposed to produce the cash flows to support the debt is measured in ingeniously crafted fantasy numbers. in short, the situation is even worse than it appears at first glance. one more thing about Noland: it is refreshing that SOMEONE is looking into these things, since his mainstream colleagues to a man ignore them (sometimes i'm not sure if they're plain stupid and swallowing the propaganda that's put out by officialdom or if they think a problem not talked about doesn't exist). well, we have countless examples in history for this...the majority of economists is a contrary indicator at best. in 1989, Japan got NOTHING BUT glowing reviews for its economic performance and policies. now the Japanese bubble is being talked about as if it had been obvious to everyone while it was still going strong. we have the same situation here...since the bust is only half a year old, nobody as of yet really believes it is for real or acknowledges its gravity. except corporate insiders of course, who are dumping their shares in record numbers. we'll see how the mainstream economists talk about the overall economic bubble in 10 years time...already the Nasdaq has been acknowledged as such after the fact. the same airheads that told everybody to buy it at 5000, 4000, 3000, now refer to the episode as a 'bubble' as if they had always known and said that it was one! not that the belief in the free lunch has been scratched much as of yet...but it will be.