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

To: mishedlo who wrote (45364)	11/13/2005 4:37:47 AM
From: Elroy Jetson	Respond to of 110194

I generally agree with ahhaha. Up until the last few months: the Fed talked a lot about tightening and raised their "eyewash Fed rate" which affects absolutely no one in the real world; the Comptroller of the Currency warned banks to tighten their loose lending standards; and nothing of consequence occurred. About three months ago rates for savers finally began to climb and the real estate markets began to seize up. That is financial tightening. The cynical said the real "tightening" would not occur until after October 17, 2005 when the new bankruptcy law went into effect. . I would say they were correct. .

To: mishedlo who wrote (45364)	11/13/2005 12:12:39 PM
From: ahhaha	Read Replies (3) \| Respond to of 110194

I disagree. Disagree with what? Consumer credit since 1950 has grown steadily, and is extremely well correlated with nominal GDP, and almost indifferently to the level of interest rates. It's a truism that the three quantities, money supply, GDP, consumer credit, should be closely proportional. Tell some clown overextended on loans that are about to be reset there was no tightening. FED's "tightening" hasn't even slowed loan demand yet. Until it does and until there's at least 100 basis points of real short rates which instantaneously is about 5% fed funds rate, there won't be any effect. We are talking about the macro level when we are talking about FED. When rates were 2% there were plenty of clowns who were overextended, but that's an individual matter that has no macro consequence. Tell that to all of those beating the rush to file for bankruptcy in October. That rush was induced by a changing in BK laws. The changes made it tougher to declare BK, so ceteris paribus, your sentiment towards loan overextension should be improving. Money supply is damn tighter than anyone thinks. MZM: research.stlouisfed.org M2: research.stlouisfed.org There is still so much money sloshing around and idiots willing to lose it that the FED will keep hiking until they break something. Doesn't this contradict your above claim? In any event money supply is neither in dearth or in excess relative to nominal GDP. That's another truism since GDP change is similar to money supply change. At that point, IMO, money will IMMEDIATELY go from being loosey goosey to incredibly overtight in one fell swoop. Ain't gonna happen. All the problem comes from FED being chronically loose in order to perpetuate eternal prosperity. Even now as they raise their fixed nominal rate on evanescent fed funds they're compensating by pumping in permanent. The economy wants to slow for various non-monetary reasons, but FED fears a slowing will require of their philosophy a lowering of target fed funds rate while inflation increments are still too high. That would embed an ever higher rate of inflation. We're tracking the '70s fairly well now as far as monetary policy goes, and that means adjusting rates to an ever higher level as the economy adjusts ever more to higher inflationary expectations. In theory, FED can't let that develop, yet everything they do leads to it. Yeesh. I do not know when, but I am sticking to that general scenario. You have stated no scenario. Your sentimental view is based on the thesis that all debt is bad when debt is always a self-correcting phenomenon. If debt gets too high, debt service cuts into discretionary income until additions of new debt are slowed or halted. Then income is diverted to pay down debt. This debt cycle process transcends any monetary authority, for it's something that goes on privately between individuals. Monetary authority can only affect the cycle at the margin, but at the macro level where it's very difficult for individuals to feel the effects, marginal changes do move the cycle's equilibrium level.