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To: Clarksterh who wrote (14293)	8/31/1998 4:18:00 AM
From: Maurice Winn	Respond to of 152472

*Money* Since SurferM gave me a passing grade and Paul Krugman is trying to persuade monetary authorities to print it up, I'll continue. Lost in the deluge of posts was: "You touched again on this question of what happens to the money when GE drops from a mkt cap of 350 to 300bil in one day on trading volume of 2bil$. Are you sure this isn't simple evaporation, poof, a trip to money heaven as Ron Insana said the other day on CNBC. While it's true that every $ that exists and is in circulation must still exist that same day, isn't the total amount of money that exists something which is elastic?" It depends what you call money. The real McCoy money which the Federal Reserve issues as banknotes or credits [either loans or outright payments to suppliers of goods and services] isn't elastic other than at the behest of the Fed who can elasticize it to infinity if they choose, but nobody else can. These real McCoy dollars were called Super Dollars = SuperDs by SurferM. Over 100 and more years, these fundamental money producers just love printing the stuff and always do so money always gradually or sometimes more quickly erodes in value as the quantity increases. This process has been concealed somewhat during rapid technology development in the New Paradigm with costs falling fast as technology and productivity races ahead. But it is still happening. Hence the rising Dow for decades. The main reason is the inches have been shrinking so the Dow seems bigger since our measuring stick has shrivelled. That process won't stop, though there will be the Big Dippers with plunges such as recently to tidy people up from time to time, get their feet back on the ground and clean out some imprudent borrowers. When we all suddenly get a fright and universally agree that the stockmarket was at silly heights, then start trading at lower prices, the SuperDs haven't changed at all. Only if Green$pan does some printing does it change [unlikely he would shrivel the SuperDs just now]. No money has gone poof! Our idea of how much money we had certainly goes poof because we are prone to get our calculators out and multiply the number of shares we own by the current price, thinking that the answer is how many SuperDs we have. Then the question went on: "When asset values shrink, doesn't the potential money supply also shrink, after all, ones' ability to borrow certainly diminishes. When the mkt cap of your portfolio shrinks, if you're margined you have to sell just to maintain equilibrium. Maybe what we're experiencing right now is just a realignment between what potential money once existed and now exists?." This brings in the multiplying effect of credit, the big frightener, because this moves fast and the same SuperD gets moved in and out of accounts, appearing in lots of accounts simultaneously. We borrow money and buy some shares. When the shares drop in price by popular vote, the lender gets the heeby jeebies and sells some of the security to reduce the debt. The price drops. So more debtors get sold out. And so on, until somebody with money in the bank or mattress steps up to the plate and buys the lot for $10. So yes, the amount of credit available shrinks as people batten the hatches, bank losses mount and prudential reserves get bashed, forcing further credit reductions, higher interest rates as desperate people try to borrow to cover their problems. Hopefully about then, the Fed steps in and lends to those who still have some creditworthiness at nice cheap interest rates. This eases the pressure and normalcy returns. But pretty soon, the old habits return, the markets roar up again debt pressures arise again [a few years later] and the whole cycle happens again, but at a new, inflated level, with the Dow at 16000 in 2002, hamburgers costing more, but not hugely more due to continuing productivity improvements in everything from beef genetics, to Web beef auctions to automatic hamburger flippers and EFTPOS cdma2000 cash. So I guess a realignment is what it is. Just thinking out loud. Hoping for anyone to correct me if I'm wrong. Still feeling queasy. Had the calculator out. Don't like the trends. Not buying any more! Looking for an interest rate cut. Hoping Ramsey, Chris, $ill Gates and Alan Green$pan get their damn SuperDs out of the mattress soon and GRAB A BARGAIN. Not calling "Uncle" yet! But if Uncle Sam prints more SuperDs, that's ok by me. Mqurice Goodbye $80! Hello Dow 8000 Feb 1998. Dreaming of Dow 16000 Feb 2002 and some champagne.