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

To: Don Lloyd who wrote (11818)	12/13/2001 7:42:40 AM
From: Ilaine	Respond to of 74559

The debt-default-contraction process you describe is fairly self-propelling, but that's not what I was thinking of. I was thinking of voluntary, rational decisions that reduce available credit to creditworthy people, e.g., raising interest rates, increasing reserve requirements, tightening lending standards, shifting preference from lending to consumption or investment. I don't think it's a coincidence that the current recession started after the Fed started raising interest rates in 2000, and the Clinton administration refused to cut taxes despite the fact that the government was running a surplus. Same thing happened in 1929 - the Fed hit the brakes on the money supply in early 1929 to stop speculation in the stock market, and the federal government was running a surplus. Credit did dry up in October, 1929, due to the collapse of a big-time speculator, Hatry, so that was the immediate trigger for the crash, probably. Not unlike what happened in 1998 with LTCM. But the Great Depression started earlier in 1929. Actually, our recession started in 1997-1998, but we didn't really notice it until last year. Once these things get rolling, they do have an avalanche effect, e.g., in 1929 creditworthy people who had jobs quit buying big ticket items on time.