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To: HairBall who wrote (13388)	5/10/1999 9:35:00 AM
From: Roebear	Respond to of 99985

LG, Hope I do not get myself booted off the MDA thread, and no I am NOT trying to turn it into the Gold MDA thread (VBG). I thought this was interesting and related to the interest rate discussion that has been on MDA of late. I am not qualified to give an analysis of this post, but I tend to believe it may be spotlighting some interesting (pun intended) points in the markets now. Contrary opinions welcome, that is how I get my education. techstocks.com Gold Price Monitor Back to #33562 Subject: Gold Price Monitor To: Hutch From: Rarebird May 10 1999 9:03AM EST Reply #33579 of 33580 Greenspam and the BOE are " Sweating " . They are scared stiff: The economy steams and Greenspan sweats By Gerard Jackson No. 118, 10- 16 May 1999 I'm feeling more and more like Cassandra, which makes it kind of lonely down here. Nevertheless, what commentators have interpreted as good news about the US economy I have interpreted as supporting my gloomy predictions. Fortunately, Greenspan is no king Priam, which accounts for his comments about overvalued shares and "imbalances in the economy". You betchya there are imbalances. But what is really happening? Bond and share prices are clearly volatile, a situation that I described elsewhere as unhealthy. A fact that Warren Buffet obviously realises and that is probably one of the reasons for his comments about there being few companies worth investing in at current prices. If the economy was genuinely progressing aggregates profits would exceed aggregate losses but without creating an unbalanced economy. This is something Greenspan understands and that is why he is worried. he realises that the economy is running on empty and that there is no way the consumer boom can be sustained. Consumption comes out of production which in turn is the result of saving. But the savings rate is so low that there is no way it can support the production structure. Unfortunately, Keynesian fallacies dominate current economic thinking to such an extent that the savings production relationship has ceased to exist for many economic commentators, including a great many on Wall Street. Mention the lack of savings and they will tell you that booming consumption is sufficient to propel the economy. This is dangerous nonsense and the US could pay a heavy price for subscribing to it. GDP was pulled up by a surge in consumer spending, the fastest rate in 11 years. If there is little or no savings and the production structure is not lengthening then where did the spending come from? From Mr Greenspan, that's who. M1 grew from March to March by 9.1 per cent while broad money, I believe, grew by around 11 per cent. Something like this happened during the booming '60s when the money supply doubled, having grown by about 10 per cent per annum on average. Rest assured, Greenspan has not forgotten this episode. Thus the boom is being fuelled by excessive monetary growth. This inflationary growth also fuelled the stock market. It is argued that if inflation was a real danger then prices would be rising. But they have risen — and risen significantly! Using the money supply to prevent rising productivity from causing prices to fall is the same as generating a price rise. This is precisely what happened in the '20s. Moreover, the effect of fuelling consumption is to worsen the current account deficit, deepen consumer and corporate debt and shorten the production structure. I believe only improvements in technology have concealed the latter process from view. By artificially stimulating consumption the Fed is misdirecting factors from the higher stages of production to the consumption stages. Now I have pointed out in other articles that the eventual effect of this process is to reduce demand at the higher stages. The National Association of Purchasing Management Index surely suggests this may be happening. Several days ago it revealed that factory orders and production fell last April, meaning that these stages are slowing down. Though the significance of this statistic seems to have completely eluded highly paid economics commentators, I doubt very much if it passed without notice at the Fed. No wonder Greenspan is making warning noises about "imbalances in the economy." Therefore, if anyone thinks he is only moved by the CPI then they are very naive indeed. Even though his chairmanship has only about 13 months to run, I believe he will eventually apply the monetary breaks. It is only a matter of time before the economic chicken comes marching home to roost. newaus.com.au