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

To: shades who wrote (59038)	4/21/2006 6:08:41 PM
From: bond_bubble	Read Replies (1) \| Respond to of 110194

There is a major flaw in the argument you give and Murray Rothbard has an argument against it in his Amer. great Dep. The depression defaults reduced the monetary base by about 50%. So Fed, provided that additional 50% to the banks so that there was no net monetary base fall. But what happened in reality was, banks had all the cash they needed, but no new credit was created!! There was noone willing to take credit and noone willing to offer credit. This is the liquidity trap Keynes talks about. Inspite of this monetary boost, banks failed!! This is exactly what happened in Japan as well. Only recently, there was positive credit offtake in Japan inspite of loose policy!!! That is the power of deflation - the liquidity trap - Chromatic failed to discuss. Now, why did banks go under if there was no decrease in the monetary base? If nobody is taking loan and giving interest money so that banks can pay its employees - banks have to necessarily shut right (it should be worse if people are defaulting!!)? what if banks give loans to business that are not viable (in the name of propping up the economy)? Obviously, everyone, including the CEO of the bank will take the loan and default!! This is what I tried explaining to Chromatic and he was not able to address that part of "helicopter money". As a matter of fact, the "helicopter money" concept was introduced by Keynes as "jar of money left open at street corners" in 1930s!!. So, you have financial institutions that SHOULD make money by lending. If the lending falls, they have to close many of the branch offices (as they can not support the staff with reduced business). If govt decides to give the employees of bank freshly printed money - then the population is going to say, give it for me also!! And most likely the CEO of the bank is going to take all the money that will be loaned and supported by Fed!! That is why banks fail!!! Not because depositors take their money out!!! In 1929, all the 50% increase in monetary base was consumed by govt!! Govt built dams etc and made it expensive for business to survive (PPI was high). No private business consumed any part of that 50% monetary base increase!! That is why there was deflation in credit. Ofcourse govt spending made sure CPI does not fall...making it hard for non-govt job holders to survive...

To: shades who wrote (59038)	4/21/2006 8:28:06 PM
From: Elroy Jetson	Read Replies (2) \| Respond to of 110194

You are not the first to have discovered misinformation on a random internet blog. I hope this doesn't surprise you. The simple truth is that during the Great Depression, people with money could easily purchase a home for 80% or 90% less than they previously sold for. My Grandparent's purchase of a home in Hancock Park in Los Angeles for $550 cash, which had previously sold for $6,200 in 1927, was hardly a fluke - but rather a common experience for those with money. The Real Estate Research Council has maintained an index of "same home" prices for Los Angeles County since 1895 maintained by by the top appraisers in Los Angeles. This index re-appraises a large number of homes once every six months. csupomona.edu The RERC "same home" index indicates that between 1927 and 1933 home prices in Los Angeles County declined by 55%. More expensive homes in areas like Hancock Park, where the stock market crash took the biggest toll, saw much larger declines in home valuations. home.pacbell.net You will notice that rents, per the CPI rent index, declined by a mere 37% during the same period in the Great Depression. I do not doubt that there are any number of "internet blogs" which disagree with this, or claim that the government is run by Martians, or definitively prove that there are no bugs in Florida. Foolishness abounds, and quoting it merely makes you seem foolish. None of this changes the obvious demonstrable facts - average home prices declined by 55% in Los Angeles County between 1927 and 1933, with larger declines seen in wealthier areas. .