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

To: BSGrinder who wrote (60258)5/21/1999 4:52:00 PM
From: Mike M2  Read Replies (1) | Respond to of 132070
 
Kit, the Austrian economists are critical of easy credit because it distorts the demand and output structure of the economy. Look at the asian tigers they invested heavily in chip fabs with the easy credit available but due to excess capacity ( in part) it is now difficult to make a profit to service the debt. In 1929 the economy softened before the crash. there is a limit to credit expansion when the debt cannot be serviced and defaults and delinquencies rise lenders will tighten credit standards and raise rates. During the 30s when t-bonds yileds were low rates were high for all but the most credit worthy borrowers. In addition, people will be reluctant to borrow. Overoptimism leads to overindebtedness the current excesses will be followed by a painful liquidation of the excess debt and capacity created during the boom. Mike



To: BSGrinder who wrote (60258)5/21/1999 6:48:00 PM
From: Knighty Tin  Respond to of 132070
 
Kit, Defaults can do it as well as higher rates, and defaults are pretty high for a supposed economic boom. However, I do expect rates on corporates to continue to trend higher, especially non-prime borrowers. Of course, more US corporations slip in the credit ratings every year, so that is working in favor of my scenario. I expect a credit contraction to cause the market crash, not the other way around.


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