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

To: Mike M2 who wrote (6142)	7/20/2001 6:55:38 PM
From: Ilaine	Read Replies (2) \| Respond to of 74559

This is what Richebacher says about credit expansion: >>Consumer borrowing in the form of installment loans played a great role in fueling the consumer spending boom in the 1920's, but statistics about their extent and source of finance are non-existent. . . . . Further considerable lending took place through institutions outside of the banking system, chiefly savings banks and building and loan associations. However, no statistics are available. . . . . Yet despite the lack of comprehensive statistics, the available evidence leaves no doubt that there was rampant credit creation. This recognition is very important because, in striking contrast, the money supply grew only modestly. Between 1925-1929, broad money grew by no more than 10%, from $50 billion to $55.5 billion. Demand deposits at banks in late 1929, at $22 billion were no higher than in late 1925. But this weakness in money growth, as already mentioned, had its cause by no means in lacking credit expansion but in the fact that credit creation occurred overwhelmingly through the securities and money markets, essentially involving no money creation.<< Now, please esplain to me how credit can be created, without showing up in a bank balance somewhere. You said that the credit wasn't created by a bank so it doesn't show up in the money supply. How does that work? Whoever borrowed the money, spent it, or if they didn't spend it, they saved it. Either way, it's going to show up in a bank balance, somewhere sometime. In fact, Richebacher confirms this: >>What did the corporations do with their surplus cash? Well, they did put it straight back into the stock market, but through a different channel. Instead of buying stocks for their own account, they lent these funds in large part as call loans at 10% and more to brokers, who financed soaring margin loans for the stock speculation of their clients. In the last 12 months before the crash, brokers' loans increased by 50%.<< Richebacher says the corporations had surplus cash - that's money. So why didn't the money supply expand? And while we're on the subject, please explain to me how "surplus cash" was created by a process that "essentially involved no money creation"?