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

To: GraceZ who wrote (47185)	12/13/2005 12:48:27 PM
From: John Vosilla	Read Replies (1) \| Respond to of 110194

"The Fed creates the worst of all worlds always trying to err on the side of inflation. It makes it so the true cost of borrowing is never accounted for while punishing those who choose to live within their means and who don't want to employ debt." This time seems to be different. Hidden inflation, very low interest rates and only a localized housing boom while the rest of the country and economy suffers. You probably know a ton of conservative folks who lived below their means and are very well off today even after the ravages of inflation. I guess buying a 3 family house in 1960 for $25k during a time when 50% down was the norm that is now worth $750k and brings in $60k gross rent a year today worked in the urban NE corridor and in California.

To: GraceZ who wrote (47185)	12/13/2005 1:24:35 PM
From: mishedlo	Respond to of 110194

Higher costs aren't necessarily inflationary unless the Fed accommodates by increasing the money supply. Higher costs can be deflationary in that they put people out of business (destroying capital investments) or they can force companies to get more efficient and put downward pressure on wages. Bingo A little inflation can still have a devastating effect on the purchasing power of your money over long periods of time. Someone who thinks we have little inflation isn't saying that we have zero inflation. 2-3% compounded over time can really squeeze you. Bingo He thinks that the Fed can control inflation more easily than deflation (although he also seems to think they can also easily control deflation). Looking at history nothing could be further from the truth. Bingo The Fed creates the worst of all worlds always trying to err on the side of inflation. It makes it so the true cost of borrowing is never accounted for while punishing those who choose to live within their means and who don't want to employ debt. Bingo The process of course continues until there is too much money and too much credit and the FED loses control. The end result is always a deflationary slide wiping out the malinvestments and blowing up in a credit crunch where no one wants to lend and no one can borrow because of overcapacity and because of sheer inability of people to take on more debt when asset prices start falling. We are at that tipping point right now IMO. Mish