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

To: Wyätt Gwyön who wrote (26300)	2/11/2005 5:08:55 PM
From: mishedlo	Read Replies (1) \| Respond to of 110194

A significant portion of the book explains how all credit bubbles end... IN DEFLATION. I do not recall any discussion of it taking higher interest rates to trigger it. The author devotes a great deal of discussion to wages and how Asian wages are deflationary. Here is a quote explaining why foreigners buy US assets. "countries running large current acct surpluses with the US need to continue buying $ assets.... otherwise their currencies appreciate and their exports decline throwing their economies into crisis." Their is a great discussion of the 1929 crash. "when the real economy was no longer able to profitably invest the available liquidity in plant equipment due to overcapacity increasing money was shifted to the stock market. the bubble burst when profit growth was unable to keep pace with rapidly rising share prices. share prices plunged, credit contracted bankruptcies proliferated" The author explains how it is not possible to defeat the cycle, and attempts to do so both in Japan and in the US will ultimately feed the deflationary crash. It is in fact the over extension of credit that is the problem. No mention of this leading to hyper-inflation. Conclusion: "The events leading up to the great depression were the same that created Japan's bubble economy, the Asia crisis, and the new paradigm bubble in America. Surging liquidity permitted credit expansion that resulted in over-investment, overcapacity, asset bubbles, and deflation. The pattern is very clear." here is another snip: "sharply rising consumer debt is continuing to fuel consumption in the US. Consumption is supporting the US economy and by extension, the global economy. However consumers are beginning to have a hard time servicing that debt. When new consumer credit is cut off, the game is over. The house of cards in the consumer lending business will come crashing down. The new paradigm recession will then begin in earnest." "every ponzi scheme ends in crisis. the great end of the century consumer credit bubble will be no different" There is a nice discussion about why consumer debt is a far bigger problem than govt debt. The book shows how all of this credit expansion is ultimately deflationary. Perhaps Russ need to read the book again or re-do his review because much of what he talks about is directly against what the book talks about. Mish