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To: Alex who wrote (9797)	4/10/1998 10:39:00 PM
From: Abner Hosmer	Respond to of 116768

Alex - Well, ultimately this money has to find something good to do with itself. I wonder if people will actually start to save. If we get Asian recovery I think a lot of dollars will flow back to Asia. There seems to be huge concern that Asia cannot recover without Japan. This may seem crazy to ask, but I wonder if maybe they actually can I don't think that the concept can be based on further Japanese investment in Asia because they already have enough industrial capacity. To get things moving what is needed is for people to consume and spend. And that means structural change, ie govt get out of the way with all of their regulations and protecting everyone's little fiefdoms, let people go to work, keep the money they earn, and go for it. If Asian govts do that, frankly I don't think it matters that much what Japan does with herself. So spending is the reason why the US and Europe keep calling for tax cuts. What they're saying is, hey, we can't carry all of the spending to pull you (Japan) and them out of the rut. Of course, Japan has been determined all along to export her way out of her late collapse and given the current situation in Asia, this is creating a tremendous amount of political friction between Washington and Tokyo, and understandably so. Maybe as the big bang moves forward Japan will be able to free herself from the death-grip of entrenched political and financial interests through the magic of competition. I recall about 4 years ago there was a lot of talk in Japan about taking what they called the "biggu bassu", a yankee term, the "big bath", biting the bullet on the banks as the US was forced to do with the S&L's. But she never did. But anyway as I said, I don't take it as a given that other societies cannot pull themselves out of the rut on account of Japan or anyone else holding them back. I think it's really up to them. Now if the money stays over here the idea seems to be that there will be too much cheap credit and we'll get demand-driven inflation. But on the other hand real interest rates are high, and business has become much better at inventory management and also at keeping head count down, so I don't think we tend to get as far ahead of ourselves. A lot of this money, as AG said, is going into mutual funds, a lot into housing. Heard on the radio the other morning that more people own their own homes in the US than ever before, and financing is so much easier to get these days. And even if times get bad, the last payment folks will let slip is their home. They'll sell 2 of their 3 cars first. Now, I wonder what happens if a lot of this money comes pouring out of the market at some point. I guess it will mean that we are in a recession, so based on large M2 growth I suppose we get stagflation? If anyone feels like helping me with this, fire at will;o] regards - Tom