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.

Gold/Mining/Energy : Gold Price Monitor -- Ignore unavailable to you. Want to Upgrade?

To: PaulM who wrote (13016)	6/12/1998 10:31:00 PM
From: butkus	Read Replies (1) \| Respond to of 116796

Debt inherently presumes upon the future. When money is easy to obtain future expectations depart from what reality will/can eventually produce. Debt load is driven by the same human emotions that are reflected in Soros' "reflexivity curve" in the stock market. The greater the upward slope at the inception of the curve the greater the lending/borrowing reflexivity. Asia had a dramatically impressive upward slope at the inception of its curve (i.e. the Asian Miracle). The resulting dramatic debt reflexivity presumed upon a future that in reality cannot be produced. The borrower has lost, the BOJ is loosing, and we will loose. Gold follows the long bond curve. When the long bond goes up so will gold. The lesson is, use your easy to get dollars to reduce debt and when the deflation strikes buy gold when the interest rates go up.

To: PaulM who wrote (13016)	6/13/1998 12:56:00 AM
From: ahhaha	Read Replies (2) \| Respond to of 116796

The FED doesn't think they are making a mistake either. It is just a notion of mine. I thought they made the same mistake in 1975 and 1978 and argued vehemently about it. No one believed me then when I claimed we would get 15% interest rates out of it. I was wrong. I underestimated how far out of equilibrium the market had gotten. In 1980 the FED just gave up and let the free market determine equilibrium rates. That rate was 21%. Compare that approach with the recent fiat nonsense of Russia. As for Japan if you say they are depressing then I would submit to you that it is the fault of the Central Bank. A country as productive as they are who have corralled the world's wealth and they have problems? To make a claim that this is due to the "shaky" position of their banks is ludicrous. Just where is the world's wealth hiding? In US T paper? Held in the interest of whom? You've been hornswoggled by the Japanese manipulations and the world press. If the BOJ started pumping all Asia's distress would evaporate in one week. In two months if you asked about the bad times. no one would know what you were talking about. They might say, "oh yes, it was so bad", but they're just looking for some commiseration. It is like 1982 was here. When you ask anybody if they remember how bad it was, they don't know what you're talking about. They know how bad it was during the Greeeaaaat Depression, but even though you had higher unemployment in 1982, the textbooks haven't programmed people into believing they had it so bad. Oh. You're saying that if banks abuse their lending, they will be chastised by higher rates or default on loans. Maybe this year a large poorly run bank in Japan will go bankrupt. What has that got to do with the people's welfare? That has consequence for those who invested in the company's securities, but not for anyone else. What consequence does many poorly run banks have on Japanese GNP? In the final analysis the stronger banks would just buy the weaker ones. That's going on here. Should we infer that things are bad here? The only consequence in this is the shuffling of names on paper. There is no real economy impact. Do you think that failure to pay back loans to a shaky bank would cause the .5% interest rate in Japan to rise? Interest rates rise because of fear of higher inflation, not because of fear of default. Where have you been? That isn't a problem of the 20th century; that was solved by Keynes in the '40s. And Japan still is fearful of applying a Keynesian solution, but they will and the Asia crisis will evaporate. The result will be that we will discover just what is under our floorboards. I don't understand what you mean by debt levels. In Japan? Here? In either case they aren't burdensome, especially not in Japan. Debt here as a % of GNP must be near all-time lows. The paucity of C & I loans makes this very clear. But nonetheless that doesn't have consequence for macro-economic policy. A country isn't financially run like an individual might. A country's wealth is essentially inexhaustible because the potential of people to create ever greater quantities of goods and services. Individuals don't have that resource potential, so they have to be more careful with their spending habits. Governments also have some responsibility to keep things rational, but you can't conclude that government debts or deficits are devastating. If we've learned anything in 20 years, I hope it is that government debt inevitably solves its own problem because it is necessarily exposed to the rude forces of the free market. There is no higher authority to whom governments can appeal or from whom will come a rescue. The future allocation has been happening for years. It got going too fast and that is what precipitated the Asia crisis. Asia is just undergoing rapid growing pains. They wouldn't even notice it much if the Japanese would get off the insular shogun-like thinking that always seems to trip them up. About the only distorted misallocation I can find is the international flows of foreign currencies into the dollar. These are irrational flows. Fear flows. Once they've finished flowing and the BOJ changes policy, they will flow back but fast. There is disequilibrium land and misallocation city. Proof? We are still very high in labor costs relative to Asia. Money flows to the most efficient producer. So why is it flowing here?