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Strategies & Market Trends : YellowLegalPad -- Ignore unavailable to you. Want to Upgrade?

To: Wade who wrote (294)	8/25/2006 12:45:27 PM
From: John McCarthy	Read Replies (1) \| Respond to of 1182

Hi Wade .. >>>>>>>>>>>>>>>>>> In the first paragraph: <Asia’s real interest rate would rise on a declining trade surplus against the US,> I am not sure how he got that prediction. Will the Asian CB push down interest rate as Japan did in the past when US kept on printing? >>>>>>>>>>>>>>>>>> Wade - the simple REAL truth is - I don't know. What follows is my: I don't know what I am talking about answer. OK? The key driver in all of this is <TOTAL INCOME>. It DICTATES everything .... BEFORE - DURING - AFTER (A) Lets start with a China that had NO TRADE with US. (B) Then had trade with US. (C) Then lost some of its trade with US. (A) China has NO TRADE with US. The China economy is represented by two workers called AA and BB. There is no trade with USA. AA and BB are therefore unemployed. They have no disposable income so they neither SPEND or SAVE. (B) China subsequently HAS trade with USA. AA and BB now make widgets for the KUNG-FU corp. who sells their goods to WALMART. For their efforts they each earn ONE DOLLAR. For each of them - (1) 40 cents goes into savings and therefore into the China banking system. (2) 60 cents goes into spending. (3) The Chinese Banking laws (making this up) allow the banks to LEND 3 times their reserves - or - $0.40 AA $0.40 BB -------- $0.80 Total money put into Chinese banks by Chinese workers named AA and BB These Banks can now lend 3 * $0.80 = $2.40 (4) Wade and John live in China and do not know each other. Each has a dream to build worlds largest GOLD MINE. Wade has a decent idea how to do it. John does not have a clue. (5) The bankers with all that money SLOSHING around in their MONEY TO LEND category ($2.40) are ANXIOUS to make loans. (6) Wade and John approach banks for loans. The banks are FIGHTING each other and make an attempt to offer Wade and John the best terms they can so as to capture Wade and John's business. They EVEN ignore the fact that John is clueless. (C) Chinas trade with USA is cut in half. Exports to USA are reduced. Worker BB is out of work. The new money going into banking system (from personal savings ) is only 40 cents versus 80 cents. The amount of money the banks can lend is reduced to $1.20 (40 cents * 3) from $2.40 (.80 cents * 3). Wade and John both have brothers. They each want to build the worlds biggest SILVER MINE. They now approach the SAME BANKS. The banking system's reserves have been cut in half. The SAME number of people are approaching these banks for loans. The banks begin to WEED OUT the truly risky ventures and because demand for these loans has not stopped begin to ASK FOR HIGHER INTEREST RATES. This helps weed out borderline projects. The NET EFFECT of a cut in employment has lead to lower savings and thereby higher interest rates for those capitalists that need to borrow. The above is a walk thru of what I think the author meant ... but I really don't know. regards, john