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Strategies & Market Trends : Mish's Global Economic Trend Analysis -- Ignore unavailable to you. Want to Upgrade?

To: mishedlo who wrote (22581)	2/1/2005 1:49:43 PM
From: RealMuLan	Respond to of 116555

Andy Xie has started his "bubble" talking about China's real estate 3 years ago. For sure, he will be right eventually<g>. For now, he will have to be consistent and keep his bubble burst talking<g>

To: mishedlo who wrote (22581)	2/1/2005 2:06:49 PM
From: mishedlo	Read Replies (1) \| Respond to of 116555

Andy Xie: "Deflation is a manifestation of excess investment. Keeping interest rates low during deflation only encourages more investment and prolongs deflation." Message 21004985 Heinz: deflation in the classic sense is a shrinking of the money supply. China's money supply is merely growing a bit slower right now than it used to. but of course, in the sense that the author wants it understood (i.e. falling prices) , this statement is not only correct (well, not entirely - i would replace 'excess investment' with 'malinvestment', which is a much more precise term) , but it makes ( probably inadvertently) an important point: namely, falling interest rates themselves are a manifestation of deflation. it is after all the PRICE of money that is falling when interest rates fall. anyway, it's true that the booms and busts that manifest themselves are a result of monetary policies. malinvestment resuls from interest rates being held too low for too long - and when they are finally hiked to deal with the increasingly obvious problem, the bust ensues. i think however it's erroneous to believe that a bust can be avoided. either the malinvestments are liquidated or not. if not, they will be liquidated in an even bigger bust later on.