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Pastimes : Ask Mohan about the Market -- Ignore unavailable to you. Want to Upgrade?

To: Thomas M. who wrote (7329)	11/7/1997 1:12:00 PM
From: Defrocked	Respond to of 18056

Do you believe wet sidewalks cause rain? I don't have time to teach you now about the difference between cause and effect. Sorry I'm being terse.

To: Thomas M. who wrote (7329)	11/7/1997 2:12:00 PM
From: Defrocked	Respond to of 18056

Thomas, a more civil and less terse response: Currencies are devalued in terms of another currency. That means the price of the devalued currency has declined in terms of another piece of paper money. Deflation and inflation refer to sustainable changes in the price of commodities and assets. Changes in the money supply are thought to be the main cause of price change which may be an effect. Some economists believe that inflation, an effect, is the result of the supply and demand imbalances for real goods, another cause. The markets are generally focusing on asset deflation which means declining values of stocks, property, gold etc. The precipitating factor in the Far East was the central bank response to currency devaluations and movement off fixed pegs. The CB's had to raise interest rates to defend their currencies. The rise in rates caused stocks to sell off. Fears of nonpayment of loans were then fueled, increasing the possiblity of real estate declines to cover bank loan losses. That's why we're here now on the DJIA. <G>If you have come up with an new definition of inflation, meaning price changes, versus money supply changes, which might be a cause, then I may have to rewrite my dissertation and Paul Samuelson and Milton Friedman will have to have their debates all over again. <g> You, of course, win a Nobel prize.<g> BTW Uncle Milton was right, and so is Robert Lucas: Its unanticipated money supply changes that cause changes in real economic activity.