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

To: Ilaine who wrote (27913)	1/26/2003 6:31:49 PM
From: LLCF	Respond to of 74559

<Interest rates can't go below zero in times of deflation, so firms can't repay old loans without dipping into operating capital. If they can't service old loans, they can't make new loans.> Right... so if firms have taken on too much debt before the downturn, it is exacerbated no? <That's the debt-deflation spiral that got most of the world in the 1930's> Right. < That same debt-deflation spiral got the Japanese due to way too many loans and an aging population.> Right big debts piled up in the pre-ceeding boom. <My argument is that debt in and of itself isn't an evil as long as you can service your debt load. Deflation isn't an evil as long as you don't owe a lot of money.> I don't see us disagreeing at all. Clearly what appears to be an OK level of debt service in good times is different than in bad times. DAK

To: Ilaine who wrote (27913)	1/26/2003 9:19:25 PM
From: Jim Fleming	Respond to of 74559

CB >Interest rates can't go below zero in times of deflation, so firms can't repay old loans without dipping into operating capital. If they can't service old loans, they can't make new loans.< You mean can't get new loans. The seizing of the banking system was what turned a corrective recession into a deflationary slide that became the depression.The stock market crash, bad Fed Policy, bad trade policy etc. were all contributors to deepening the recession but the international banking system failed to provide the liquidity necessary to stem the tide of deflation. I guess deflation is is difficult to slow if it gains momentum and impossible to reverse except over a long time frame. I hope we are not about to find out. Jim