Silicon Investor (SI) -- The First Internet Community

STOCKTALK

We've detected that you're using an ad content blocking browser plug-in or feature. Ads provide a critical source of revenue to the continued operation of Silicon Investor. We ask that you disable ad blocking while on Silicon Investor in the best interests of our community. If you are not using an ad blocker but are still receiving this message, make sure your browser's tracking protection is set to the 'standard' level.

Strategies & Market Trends : Heinz Blasnik- Views You Can Use -- Ignore unavailable to you. Want to Upgrade?

To: benwood who wrote (999)	5/9/2003 4:26:56 PM
From: gpowell	Read Replies (1) \| Respond to of 4904

Last I checked we were a debtor nation and you made a specific assertion about borrowers. Assuming we are in a closed economy then interest rate changes will have zero net income effect. However, there is still a substitution effect which will lead individuals to shift their preference between current and future consumption towards current consumption. In any case, I will revert to my earlier observation that cash in refi’s were at record levels and saving rates are increasing, I will also add that corporate cash flows have been very good throughout 2002. Thus your assertion that individuals are borrowing in order to smooth out wealth decreases is not supported by the facts. What is consistent with the observed facts is that low interest rates are the result of slack loan demand, which itself is a result of a lowered expectation of future growth. I reiterate, the adjustment process has a few effects, which I believe is reflected in the various statistics, depending upon whether the drop in output growth is seen as temporary, combined with individual’s preference to spread out both good and bad fortune over their lifetimes. Also, I've read figure regarding the volume of money pulled out at refi time, and I recall it was in the neighborhood of $1.2 trillion in 2001 and $480 million in 2002. In either case, those consumers had a big boost in spending, and for some, it was a one-time deal. That is the idea behind consumption smoothing. It’s an individual’s choice. In aggregate any gain or loss is spread over time.