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Pete,
Thank you very kindly for taking the time to answer my question. I find much
to agree with in your "brief explanation". The recent down turn in the stock
market here wold seem at least in part support your conclusions. Non-US
Dollar currencies did definitely make a powerful rally at the same time for
one thing that supports those conclusions.
I don't know what the long term cumulative average of prevailing interest
rates would show as the mean; but I always thought mortgage rates over about
7.5% were high but my view my be subject to the time I'm living in. We had
lower interest rates in the 50's and 60's along with fairly low inflation. I
do not see inflation as low now despite what I hear.
I'm not sure that everyone would agree with your view of what fundamentals
are, both definitions make sense to me. Again if something must occur then
all Austrian Economists should be very well positioned all the time. I still
like to allow for a random event like an invention such as hydraulics that
suddenly makes it possible for one man to do what it took many others to do
at the same time to impact an economic outcome.
Brent
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Brent
The following is only a brief explanation Austrian economics is my preferred
"frame work" in assessing global macro situation. Specifically, in Japan ,
what's referred to as the "pool of funding" has been depleted in Japan over
the last 30 or so years. The "pool of funding" basically encompasses the net
wealth of a nation. This net wealth is eroded by the artificial manipulation
of economics areas of interest, primarily interest rates. In japan
specifically, what people refer to as the "bubble economy of the 80's" was
the climax of this manipulation of the pool of funding..Once manipulation
occurs, the short term (perhaps many years) benefits of reduced
unemployment, high eco growth rates etc are not sustainable & the economy
must collapse & return to the mean. All govt. policies are manipulation. It
is basically the miss-allocation of resources. The lowering(or increase) of
interest rates by reserve banks is a wealth consuming activity to a nation
which, because it doesn't correspond to consumers decision to save more,
implies that there isn't an increase in the allocation of the means of
sustenance ( IE productive resources) in the economy. So capital (hence
eventually other economic resources like labor etc.. hence lower
unemployment rates in short term) is diverted to less deserving ventures in
the economy which otherwise would not have taken place (were it not for the
artificial lowering of interest rates by the reserve bank)...... this in
essence is "fat" in the economy. Eventually to support this "fat" (ie
economic booms in stock markets) the reserve needs to keep lowering interest
rates etc, otherwise it will all collapse. This is what happened in japan, &
recently Asia. The greater the manipulation the harder the fall & economic
problems, & hence the longer it takes to restore the economies natural
resource allocations levels In japan Money supply grew to such an extent by
the artificial lowering of interest rates that in order to keep supporting
the economy (stock market) the govt had to keep printing money, but this is
only possible for so long, so then what happens is you have asset deflation
(leading to recession), (eventually you get consumer deflation as incomes
dwindle) & due to the excessive money supply, coupled with the massive
exodus of capital from the country due to the asset deflation you get
exchange rate depreciation., this of course raises risk premiums in the
country & interest rates to attract the badly need capital for economic
activity........ IE credit crunch. TELL ME .....DOES THIS SOUND
FAMILIAR......JAPAN, ASIA (yen, ringgit, consumer inflation world wide)
....& eventually the USA will succumb to this outcome.. From this we can see
that unless the govt. of these countries allow asset depreciation to take
place & allow there ER to move freely, they are only going to draw out the
pain for their countries & exacerbate the situation. Manipulation of
economies occurred mostly in Malaysia & Indonesia & therefore that's where
most economic damage has occurred. Australia, Singapore etc haven't been
hurt at all (comparatively)
Brent, fundamentals allow you to understand what's going on & why (&
importantly what comes next), its not for trading specifically on day to day
basis but you can pick what's going to happen to te yen for example
over..all. It allows you understand what MUST occur & that it will
EVENTUALLY occur. Fundamental analysis is all a "framework" of assessing
situations . Hope this helped
Peter
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