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 : Booms, Busts, and Recoveries -- Ignore unavailable to you. Want to Upgrade?

To: macavity who wrote (41150)	11/8/2003 3:41:32 PM
From: Mark Adams	Read Replies (2) \| Respond to of 74559

Ok- it's going to take me more than one pass to parse your message, so I'm just going to comment on one or two things that stand out on the first scan. One key thing I seem to understand you are saying is the 'rental rate of money' is not freely set in the market. I suspect this is true, especially on the forward end, as I cannot fathom masses of senior citizens lining up to hand over their accumulated wealth for 1 year CDs paying less than the rate of inflation, unless they had no other effective choice. I still ponder why it is that the Japanese JGB's pay about 1.5% when the credit rating of Japan has been downgraded below that of Chile & Botswana and Japan's Govt Debt/GDP ratio approaches nearly 150%, double and nearly triple that of most G7. How is it that what appears to be a 'poor credit risk' 'deeply in debt' pays a lower rate than the US and UK if 'money rental rates' are freely set? I suspected for a bit this might have something to do with the preference for Japanese savers to invest in Japanese debt, an animal they know, without exchange rate risk, much like US Senior citizens prefer to invest in 1 yr CDs. But I cannot say for sure. Where I I think we might look for some new angle is here: Credit growth is bad when it is not market-determined. I.e. when the cost of credit is not determined by market action. Embedded here may be an assumption worth examining. Do irrational rates drive the market's level of debt and desire to take on new debt? Apparently the answer is sometimes yes, sometimes no. What if rates are negative, and people are unwilling to borrow? An example: It appears that Hong Kong remains in a liquidity trap. Low interest rates have given limited stimulus to loan creation, and the dramatic turnaround in market sentiment in recent months has yet to kick off a pickup in loan growth. morganstanley.com A possible second example; There are some concerns floating about that US MZM/MX is decreasing over recent weeks, that perhaps the Fed is taking the punch bowl away. Yet the Fed hasn't changed the rate they set- it is still at 1% (negative real). We conclude that the need or desire for MZM/MX is decreasing, despite negative rates at the short end of the curve. BTW, I'm still muddled on the whole "consumer choices decouple monetary/credit growth from inflation/deflation, not to mention the impact of investment driven production growth" and the (now a new big word: time) intertemporal aspects of such. Wow, try doing a google on 'intertemporal' I've tried drawing several pictures, sorting flows and decision making with flowcharts, and I think I'm still missing an ah ha! as it doesn't seem simple enough yet. One thing is clear- such a world does not lend itself to simplistic assertions. When one understands the more complex interactions & variable lags, one can comprehend better the plight of the fed. Try driving a car, blindfolded, with air bubbles in the gas and brake lines. Fact Check; fpcj.jp economist.com economist.com economist.com economist.com