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Strategies & Market Trends : Graham and Doddsville -- Value Investing In The New Era -- Ignore unavailable to you. Want to Upgrade?

To: Freedom Fighter who wrote (1328)	2/23/1999 12:55:00 PM
From: Freedom Fighter	Read Replies (2) \| Respond to of 1722

Porc, I just thought of one more effect of central bank credit inflation that is not as understood. When credit is created out of thin air (money printing) as opposed to from savings, prices will be higher than they would otherwise be. This does not mean inflation, but prices will be higher than they would otherwise be. These "higher than they would otherwise be prices" do not occur uniformly because it takes time for the new money to make its way through the whole system. That means that those that get the new money first are at an advantage over those who receive it later or last in terms of purchasing power. In other words, it is a wealth transfer mechanism. Banks, brokers, and government get the new money first. It's no wonder they love it and support it. Wayne

To: Freedom Fighter who wrote (1328)	2/25/1999 10:55:00 PM
From: porcupine --''''>	Read Replies (3) \| Respond to of 1722

"This is not a conversion attempt." Believe it or not, you have largely converted me to the AS view of the disease, though I still feel that all of the usual "warning signs" strongly suggest that their proposed cure would be much worse than the disease itself, bad as that is. You have led me to see what seems like a plausible explanation for deflation in the market for goods alongside inflation in the market for assets. The deflation in the price of goods stems from excess capacity producing too much output relative to demand. Yet, the excess output is the result of it being too easy to finance additional capacity with cheap financing from both debt and equity. Thus, the falling prices for goods are the result of the rising prices of stocks and bonds. Obviously, this is an unstable situation. To the extent that the Fed has artificially increased the gap between the cost of debt and the return on equity, it has therefore encouraged excessive leverage to load up on equity. This can be seen in the troubling development that corprations that were reducing debt for much of the 90's have for the past year or so been issuing bonds to buy back stock at the very point when stock prices are unsustainably high. But, I still don't buy that the answer is to limit future investment to past savings, any more than I believe that the solution to excessive use of credit cards is to make credit cards illegal. And, I still believe that the government must be the lender of last resort, just as it must be the granary of last resort, the retirement plan of last resort, the medical healer of last resort, etc.