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

To: Maurice Winn who wrote (14881)	2/11/2002 2:15:24 PM
From: AC Flyer	Read Replies (1) \| Respond to of 74559

Mq: Great post! We are attuned to the same cosmic frequency - I trust you will not be insulted by this. :) I would add one small but, imho, very important point. >>They are printing flat out to swamp the place with dosh and low interest rates so that people go shopping.<< The low interest rates are to get the masses to the mall and the auto dealer, but the increase in the money supply is for quite a different reason - to prevent nominal prices of goods and services from falling, as this is what triggers the spiral of reduced consumption and deflationary psychology that ends in depression. Prices are falling in real terms, but this is offset by the increase in liquidity, hence stabilizing nominal prices. I maintain that Uncle Al has achieved the mythical, miraculous controlled depression.

To: Maurice Winn who wrote (14881)	2/11/2002 2:53:47 PM
From: TobagoJack	Read Replies (1) \| Respond to of 74559

Hi Maurice, <<At the moment ... gold is the best speculative bet ... because gold will be as much a wild ride down as the dot.bomb and telecosmic black hole. Speculation is still speculation ... buy on the way up will have to play the dot.com game ... Get in early and get out at the peak when they ring the bell to tell everyone that the party's over ... People are being sucked into another bubble.>> Yyeeessss! 2 da mooon! :0) Chugs, Jay

To: Maurice Winn who wrote (14881)	2/11/2002 2:57:10 PM
From: Don Lloyd	Read Replies (2) \| Respond to of 74559

Maurice - ...Deflation is when prices of products, goods and services are dropping.... This is true for at least one definition of deflation, but in and of itself it says nothing. Deflation can be factored into four distinct possible categories, each of which is distinguished by its direct cause. The general prices of goods and services fall as a result of : 1. Growth or Productivity Deflation - The money prices of goods fall because more efficient processes and methods utilize labor and other production factors more productively, and competition forces the benefits to flow through to the consumer in the form of lower prices. 2. Monetary Demand Deflation - For whatever reason, often a more pessimistic economic outlook, consumers increase their demand for money to hold in their cash balances. This necessarily has the effect of increasing the purchasing power of money, effectively reducing the money prices of goods, since not every consumer can increase his money holdings if the total supply of money is temporarily fixed. 3. Bank Credit Contraction Deflation - Part of the broad money supply is the total of bank credit extended in a fractional reserve banking system. When economic reverses produce high rates of insolvency, the banks not only fail to collect their coupon payments, and lose their extended loan principal, but become increasingly reluctant to make new loans. This reduction in the broad money supply means that the remaining money supply must take on a larger burden. This results in an increase in the purchasing power of money, and a concomitant reduction in the money prices of goods. 4. Government Confiscation Deflation - This is the result of the government either seizing, destroying, devaluing or encumbering the public's use of its money. This is what Argentina has recently accomplished. As above, the remaining money supply becomes more significant, and the result is lower money prices for goods. It should be clear that the mere fact of deflation, if defined as the falling money prices of goods and services, is of no descriptive or prescriptive value unless the particular type and cause of deflation is known. The four types of deflation above are ordered from very positive to very negative in effect. The two middle types, 2 and 3, can be considered as appropriate adjustments to prevailing and oncoming economic conditions, i.e. a need for future purchasing power and a correction to excessively expanded credit, respectively. On the other hand, type 1 is entirely positive and type 4 is completely negative. Regards, Don