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Strategies & Market Trends : The Epic American Credit and Bond Bubble Laboratory -- Ignore unavailable to you. Want to Upgrade?

To: russwinter who wrote (20073)	10/17/2004 10:20:37 AM
From: KyrosL	Read Replies (1) \| Respond to of 110194

I am wondering how a crack up boom is different nowadays compared to those olden times, when now most of what we buy are services rather than goods.

To: russwinter who wrote (20073)	10/17/2004 11:11:35 AM
From: loantech	Read Replies (1) \| Respond to of 110194

<Further, you are asking him to answer "what to do" in a crack up boom as if it's an easy answer. Clearly it isn't an easy answer as it will be extremely difficult and dislocating. I'm not sure how I will survive it, and I have better awareness of it, of about anybody> I don't know either Russ but paying off all debt comes to mind for me.

To: russwinter who wrote (20073)	10/17/2004 11:30:08 AM
From: glenn_a	Read Replies (1) \| Respond to of 110194

Russ. The quote from the Mises Institute describing the nature of a "crack up boom" is fantastic. Thanks for excerpting, though I know I've read many such posts from you prior. It's interesting to compare this scenario as ultimately (IMO) a policy response to a massive credit bubble bust, and that of the deflationary policy pursued by the U.S. in the early 1930's & Japan in the 1990's. Very different distribution of burdens on creditors and debtors. But I do question if the best policy response the U.S. policy elites can come up with is a replay of French monetary policy of the late 18th century, or Wiemar German monetary policy of the early 1920's. I mean look at the impact that had on those societies, as well as the Governments it later brought to power (i.e. Napoleon and Hitler). At the same time, that recent US monetary policy, and the "flight into real goods"/"crack-up boom" scenarios you describe, do suggest that a deflationary policy response of the U.S. 1930's or Japan in the 1990's can not be assumed. So why not a middle of the road policy response that effectively combines a bit of both, while at the same time seeks to avoid the worst of both scenarios - that is, either a windfall to, or collapse of, the creditor class (i.e. bond holders), or a windfall to, or collapse of, holders of real assets? This would see, to my mind, a situation where the burden is distributed across both constituencies - i.e. the prices of real assets fall (but don't collapse), and the value of debt falls (but is not obliterated). And the proximate condition for this, to my mind, is first and foremost normalization of the interest rate structure (i.e. positive real interest rates), hopefully with moderate or significant inflation (but not infinite thereby completely destroying the monetary system). For starters, say 3-4% inflation combined with 6% nominal interest rates. I mean, that's a total crapshoot in terms of what combination of nominal interest rates and inflation would be appropriate from a policy vantage point. But my initial sense is that moderate inflation combined with relatively high real interest rates (say 2-5% above the inflation rate) would be a heck of a lot better than the 5-15% real interest rate suffered under the deflationary period of 1930-32 in the U.S. See also my previous post this AM that expands on this thesis: Message 20651958 Anyway, that's the best I can come up with given my limited understanding of the current state of affairs. Please point out where you differ in your reasoning from the above, and where I may have made incorrect assumptions or conclusions. Regards, Glenn

To: russwinter who wrote (20073)	10/17/2004 12:25:06 PM
From: Square_Dealings	Respond to of 110194

excerpts from Greenspan's 1966 "GOLD AND ECONOMIC FREEDOM" posted earlier "...A fully free banking system and fully consistent gold standard have not as yet been achieved. But prior to World War I, the banking system in the United States (and in most of the world) was based on gold, and even though governments intervened occasionally, banking was more free than controlled. Periodically, as a result of overly rapid credit expansion, banks became loaned up to the limit of their gold reserves, interest rates rose sharply, new credit was cut off and the economy went into a sharp, but short-lived, recession. (Compared with the depressions of 1920 and 1932, the pre-World War I business declines were mild indeed.) It was limited gold reserves that stopped the unbalanced expansions of business activity, before they could develop into the post-World War I type of disaster. The readjustment periods were short and the economies quickly re-established a sound basis to resume expansion. But the process of cure was misdiagnosed as the disease: if shortage of bank reserves was causing a business decline - argued economic interventionists - why not find a way of supplying increased reserves to the banks so they never need be short! If banks can continue to loan money indefinitely - it was claimed - there need never be any slumps in business. And so the Federal Reserve System was organized in 1913. It consisted of 12 regional Federal Reserve banks nominally owned by private bankers, but, in fact, government sponsored, controlled and supported. Credit extended by these banks is in practice (though not legally) backed by the taxing power of the federal government. ....." "...In the absence of the gold standard, there is no way to protect savings from confiscation through inflation. There is no safe store of value. If there were, the government would have to make its holding illegal, as was done in the case of gold. If everyone decided, for example, to convert all his bank deposits to silver or copper or any other good, and thereafter declined to accept checks as payment for goods, bank deposits would lose their purchasing power and government-created bank credit would be worthless as a claim on goods. The financial policy of the welfare state requires that there be no way for the owners of wealth to protect themselves. This is the shabby secret of the welfare statists’ tirades against gold. Deficit spending is simply a scheme for the "hidden" confiscation of wealth. Gold stands in the way of this insidious process. It stands as a protector of property rights. If one grasps this, one has no difficulty in understanding the statists’ antagonism toward the gold standard." full article Message 20643186

To: russwinter who wrote (20073)	10/17/2004 1:54:19 PM
From: mishedlo	Read Replies (1) \| Respond to of 110194

My answer to this question is essentially the same as the answer I gave you on my board about the affects of a housing bust. Message 20652620

To: russwinter who wrote (20073)	10/17/2004 2:06:34 PM
From: XBrit	Respond to of 110194

Thank you, that's a very clear description. Love those Austrians. In the case of the Continental Currency and the Weimar Germany inflations, do you happen to know what precipitated the death-spiral? If I read the descriptions right, it was a conscious government decision to print money and inflate away government debt. If so, is that really happening today? I don't think it is yet, but I see the temptation could be there, say in 5 years or so when the Federal debts have become worse. Also I wonder if the course of past events may not be followed in our future, i.e. I wonder if the govt would actually be able to get such a bonfire started. The mitigating deflationary effect of free global trade (China) may, IMO, be big enough to put out the fire before it really gets started.