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

To: Tommaso who wrote (51315)	1/25/2006 11:39:14 AM
From: mishedlo	Read Replies (3) \| Respond to of 110194

Lately the expansion of money has not been that great. However credit has. It is a divergence that I think will lead to an actual contraction in credit and fairly soon too. Mish

To: Tommaso who wrote (51315)	1/25/2006 12:06:46 PM
From: GST	Respond to of 110194

I have no illusions about the Fed having been anything less than easy. The trouble is figuring out what is going on and what will happen next. Positional goods will rise on excess monetary expansion. But they will also rise if there is simply a redistribution to the most wealthy people in the country. If a wealthy person receives a huge tax break, that person is far more likely to use it to bid up the price of a positional good -- it will not go towards more toothpaste, etc. Asset inflation is complex and not merely a matter of money supply.

To: Tommaso who wrote (51315)	1/25/2006 2:42:54 PM
From: GST	Read Replies (2) \| Respond to of 110194

This may help you to understand where Mish is coming from: "The Austrian economists claim that the only cause of inflation is the increase of the money supply relative to the output of the economy.1 These economists outright reject the theories behind cost push inflation, wage push inflation and other common theories of inflation. From their perspective, the correct policy is not based on the total quantity of money, but to set a particular quality of money, a relationship between the MZM, that is "Money to Zero Maturity" and the growth of the economy. Because controlling the available immediately spendable currency is crucial to price stability in this view, economists who subscribe to this idea often advocate the return to a gold standard." The same source goes on to say: "Criticism of monetary policy Some free market economists, especially those belonging to the Austrian School criticise the very idea of monetary policy, believing that it distorts investment. In the free market interest rates will be set by saver's time preference. If there is a high time preference this means that savers will have a strong preference for consuming goods now rather than saving for them. Thus interest rates will rise due to the low supply of savings. With low time preference interest rates will fall. The interest rates send signals to businessmen as to what is worth investing in, low interest rates will mean that more capital is invested. Monetary policy means that the interest rates no longer represent consumer time preferences and so investments are made by businessmen with the wrong signals. Lower than market interest rates will therefore mean a higher investment than the economy desires. This will mean that there will be capital goods that have been over invested, and will need to be liquidated. This liquidation is the cause of the depression that makes for the business cycle." reference.com And one last point: "In economics, inflation is an increase in the general level of prices of a given kind. General inflation is a fall in the market value or purchasing power of money within an economy, as compared to currency devaluation which is the fall of the market value of a currency between economies. General inflation is referred to as a rise in the general level of prices. The former applies to the value of the currency within the national region of use, whereas the latter applies to the external value on international markets. The extent to which these two phenomena are related is open to economic debate. Inflation is the opposite of deflation. Zero or very low positive inflation is called price stability. In some contexts the word "inflation" is used to mean an increase in the money supply, which is sometimes seen as the cause of price increases. Some economists (of the Austrian school) still prefer this meaning of the term, rather than to mean the price increases themselves. Thus, for example, some observers of the 1920s in the United States refer to "inflation" even though prices were not increasing at the time. Below, the word "inflation" will be used to refer to a general increase in prices unless otherwise specified."