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Politics : Ask Michael Burke -- Ignore unavailable to you. Want to Upgrade?

To: valueminded who wrote (52468)	3/18/1999 12:51:00 PM
From: Tommaso	Respond to of 132070

"If our money supply has been expanding at double digit rates, why are interest rates (long term) stable or lower than they were a year ago ? thanks" The money supply increase has not yet shown up as what most people perceive as inflation, when commodity prices, then manufactured goods, then wages begin to rise. The gradual climb in oil prices may be the beginning of this--and increased energy prices tend to get passed along in nearly every other area of economic activity. It is hard for me not to see everything from my bearish bias, but if a rise in energy prices translates into a general price rise (which could take eighteen months or more, since we are now so used to disinflation and people are slow to mark up prices or ask higher wages), and if the fed raises interest rates to "fight" what they have caused, then that could knock the stock market down as much as 60%. As we all know, there are many historical examples of such declines.

To: valueminded who wrote (52468)	3/18/1999 1:58:00 PM
From: Thomas M.	Read Replies (1) \| Respond to of 132070

Actually, that is exactly how it has worked in the past: "We have built the most incredible economic machine the world has ever seen. But now we need a rest. Over the past quarter of a century, we have created a seemingly unlimited number of new products and services, but now we are beginning to run out of markets. We have burned up credit, and generated debt beyond all belief, and now we must get rid of it somehow. Historically, it has never been possible to pay back all the debt after a long wave peak. It must be wiped out either by price deflation and default or by further currency depreciation, and ultimately the introduction of a new currency. The process is as old as history. For instance in Biblical times there was a jubilee every 50 years when all debts were forgiven. In the seventh century B.C., after a roaring inflation caused by the importation of coins by the successful merchants of Athens, Solon the lawgiver issued his famed "Seisachtheia" or shaking off of burdens in which the mortgage pillars symbolizing debts, were torn down. Peasants who had pledged themselves into slavery to pay their debts—as was the custom at that time—were freed to start economic life anew, and new money was issued." Julian Snyder (from his 1983 Introduction to The Long Wave Cycle, by Nikolai Kondratieff)

To: valueminded who wrote (52468)	3/19/1999 11:21:00 AM
From: Mike M2	Respond to of 132070

chris, while it is true that most recessions and bear markets seem to be triggered by Fed tightening and higher interest rates this was not the case in the 30's. I expect a recession to hammer the value of securitized loans and diminish the availability of such easy money from securitized debt. Market forces will tighten credit. While many expect the excess growth in the money supply to lead to product price inflation I do not. I expect debt deflation to be the dominant economic force in the future. When recession hits in the US I do expect the US dollar to fall in value and rates to rise but the loss of wealth associated with declining stock prices will have a very depressing effect on the economy. Some of the factors contributing to the decline in long term rates are - The carry trade especially yen and gold has been a favourite of the hedge fund community -a highly leveraged bunch that has the Fed on their side for now. Asian central banks were major buyers of US debt now they are sellers. Your question is simple but the answer is complex my answer is an attempt to cover some of the major factors and I am sure that I am missing some of the causal factors. I would add that the decline in in product price inflation has been a global event and would not attribute it exclusively to the monetary policy of the US Fed. Mike

To: valueminded who wrote (52468)	3/19/1999 11:35:00 AM
From: VS	Respond to of 132070

>If our money supply has been expanding at double digit rates, why are >interest rates (long term) stable or lower than they were a year ago Chris, i think a couple of people had good responses to your note. I'll throw my 2c in: Think of money as a commodity, and interest rates as the cost of that commodity. In the absence of inflation expectations, as the supply of a commodity increases, its cost (interest rates) should decrease. The key, of course, is inflation expectations. Hope that helps. To all: great thread here! I hope to participate once in a while. Vince