Silicon Investor (SI) -- The First Internet Community

STOCKTALK

We've detected that you're using an ad content blocking browser plug-in or feature. Ads provide a critical source of revenue to the continued operation of Silicon Investor. We ask that you disable ad blocking while on Silicon Investor in the best interests of our community. If you are not using an ad blocker but are still receiving this message, make sure your browser's tracking protection is set to the 'standard' level.

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

To: daveinmarinca who wrote (104440)	8/12/2009 3:00:14 AM
From: Elroy Jetson	4 Recommendations Read Replies (1) \| Respond to of 110194

Debt and money can seem interchangeable as an increase in debt increases asset prices just as surely as does an increase in money. In actuality debt is not an increase in money, but a more rapid circulation of existing money. This difference may seem moot until you're in a situation like last September when those with money were in quite a different situation from those who had a line of credit. Unlike money, debt can vanish as quickly as it appeared. This is why the age old rules of debt to income ratios cannot be overturned. In the short run, increasing debt levels like we created since 1980 can be accommodated with ever lower interest rates, but you eventually end up in a situation called "zero bound" where it's difficult for interest rates to become negative. The important thing to understand is that the Federal Reserve has not created new money (Permanent Reserves) for quite a long number of years. All the new "money supply" has been debt. We're effectively at zero bound where debt to income cannot continue to grow, which creates instability. Instability combined with maximum debt to income ratios inevitably leads to less debt through bankruptcy and liquidation. Some pain can be mitigated by increasing government debt as consumer and business debt is destroyed, but it would be, in my opinion, a horrible mistake to replace one for the other on a one-for-one basis. That's what Monetarists would recommend, but I believe they're wholly insane even on their best days.

To: daveinmarinca who wrote (104440)	8/12/2009 2:21:40 PM
From: bart13	3 Recommendations Read Replies (1) \| Respond to of 110194

Glad to hear that my various ramblings have been of some use. It really is quite a b*tch to get a decent and reliable view from the 30,000 foot level with all the changes in both US monetary and fiscal areas - let alone international capital flows or that odd item called sentiment from those weird human things. No doubt that markets are close to an extreme in the pendulum swing game and I am very lightly short the S&P and generally agree with Vi's take... and who the hell knows. That Keynes quote applies more than ever, given that stock market levels are a matter of "national security": "The market can stay irrational longer than you can stay solvent." -- John Maynard Keynes