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

To: YanivBA who wrote (69155)	8/31/2006 1:03:30 AM
From: John Vosilla	Read Replies (1) \| Respond to of 110194

I to would think it is the opposite with too much money chasing too few goods in a demand pull inflationary environment. However this excess credit creation in a period of constrained monetary increases is the story in a cost push environment that we might be in instead? Pumping up of asset values via an easy credit pump and artificially low long term rates comes full circle in this environment as we enter the debt cleansing phase?

To: YanivBA who wrote (69155)	8/31/2006 8:32:45 AM
From: russwinter	Read Replies (4) \| Respond to of 110194

Only "early receivers" are beneficiaries in inflations. I call this group "Bully". In Austrian economics there are also late receivers or non-receivers (who I have coined Brazil Americans). Judging from the polls, and subject to debate, BAs may be as much as two-thirds of the American people now? The inflation is driven by the early receivers who bid up prices, and Brazil Americans just don't have access to the cheap credit, or have the income prospects to keep up with it. So what happens is that when money stays loose (or as is now the rage, headed even looser), it flows mostly to Bullies, who just fuel more inflation, leaving BAs broke and back in the fumes and dust. Here is the Ludwig von Mises essay describing this aspect of Bubble economics: The expansion in banks' credit, i.e., credit out of "thin air", begins with a particular individual or a group of individuals—in other words there are always first receivers of money out of "thin air". The first borrowers are the greatest beneficiaries of the new credit since they are the first receivers of the newly created money out of "thin air"—their purchasing power has increased. The early recipients can now purchase a greater amount of goods while the prices of these goods are still unaffected. Because the early recipients of money are much wealthier now than before the monetary injections took place, they are likely to alter their patterns of consumption. With greater purchasing power at their disposal, their demand for less essential goods and services expands. The increase in purchasing power, while boosting the demand for goods and services of the early recipients of money, also gives rise to demand for goods which, prior to monetary expansion, would not have been considered at all. This increase in the purchasing power of the early recipients of money however, is at the expense of the late receivers or non-receivers. In short, this increase amounts to a transfer of real funding from the late recipients of money to the early recipients of newly created money. The manifestation of this transfer of real funding occurs once the early recipients bid prices of goods and services up. This means that the late recipients of money will now have less purchasing power at their disposal, all other things being equal.