|
PureBytes Links
Trading Reference Links
|
this is long so if you are not interested delete it. It gives a good
explanation of what happens when money supply is exploded, interest
rates are cut, yet there is no increase in the savings rate and no debt
paydown. This is one mans view and I thought that it was worth passing
on. Ira.
There are those who believe the rate cuts are working. They think the
Fed can "steer" the economy, all done with monetary "tools". Push the
right button, pull the right lever and all will be right with the world.
Sorry, but there's no prize for wrong thinking.
Since its creation, the Fed has had one power and one only: the Fed
can create or destroy money. Since 1913, the Fed has destroyed money at
a phenomenal rate. A dollar then is worth 5 cents now, and the Fed is
trying to drop it further. Even the power to create and destroy money is
tempered by the behavior of the markets. If enough demand for money and
loans is not present, cutting the fed funds rate will not help. At
present MZM is growing unabated and with reckless abandon. Greenspan
will "save" the banks by aiding them in increasing their loan loss
reserves against a probable onslaught of CLEC/TELCO defaults by creating
money. But at what cost to investors? He can buy and sell government
bonds, but too many bond purchases will lead to a falling dollar and
inflation.
Will we yet turn Japanese? The Japanese expanded via inflationary
policies until they fell into what appears to be permanent recession.
Might we too suffer from permanent recession, with a Central Bank
begging people to borrow? Japanese banks recently lowered rates from .15
to .10 with no change in their economy. Have the latest Japanese cuts
spurred productivity, and will they do so in America? No, because
productivity depends on savings, not debt, not borrowing. Why not just
lower rates to some magical number and have the economy take off
skyward? It's because money creation does not produce prosperity, it
doesn't create ANY benefit to the citizens. Murray Rothbard taught that
once we've created money, there is practically no reason to create any
more. Currency creation only redistributes wealth, making each
individual unit of currency worth
less. In short, although prices and home values may rise, these
results are meaningless, as purchasing power deteriorates. ! The only
people who benefit from money creation are those who receive the use of
the "hot" money first, before the purchasing power for all of us drops.
We do not benefit from money creation, it's usually always only the
banks who receive the bennies. Government receives more in taxation, but
even the government's purchasing power declines.
Don't we need tons of new money when the economy is weak? No way. The
economy is weak because of the previous boom period. That boom was out
of all proportion to savings. The madness since '96 has been funded with
money expansion and debt creation. Those who have followed what I've
said for a long time, have heard me refer to fudged government figures
and the growth of $1 in GDP requiring $4 of debt. That's an unjustified
expansion which went way too far, and can NEVER be justified. The proper
course for the Fed is to allow the correction to continue, so we can
then go forward with some economic balance. At some point failure must
be allowed to clear the economy of the inefficient. Prolonging the
inevitable will make it worse, much worse.
The Fed is trying to refuse to allow a correction, the politicians
seek reelection, the public, being poorly educated by the federal
monopoly, doesn't understand cause-and-effect, and Wall Street gurus
think cutting rates and money expansion is a panacea for growth. Some
people, many economists included, will cease any excuse to flood the
world with dollars. This will increase tax bracket creep and lower each
person's purchasing power. Is that a formula for recovery?
The Fed, through money creation, will decrease the value of the
dollar, allow inefficient businesses to continue operating on borrowed
funds, encourage borrowing by debt-ridden consumers and businesses
leading to massive defaults, and create hyperinflation. We're leaving
Utopia at a high rate of speed, and still earnings are not turning
around. The Fed is a failed and anachronistic symbol of what is wrong
with America and her economy. We are far afield from capitalism here,
and risking a socialistic sinking of what might have been a vibrant
economy.
Meaningful tax cuts could have allowed consumers and businesses to pay
down some debt, but many politicians preferred recession to meaningful
tax cuts. They wanted a dissatisfied public to change the balance of
power during the next election. Cutting redtape and overbearing
bureaucratic regulations might have improved employment growth prospects
down the road, but the government thrives on power, they NEVER give it
back in the form of individual freedom. The Fed is determined to
undermine our economic system by tinkering to "save" it. Somethings
never change, as bureaucrats struggle to save face, rather than doing
what's right. Will all this rate cutting and monetary expansion "save"
the economy, or ultimately wreck it? It will be a short term "fix" at
best, but the inevitable will occur, regardless of what the fed
bureaucrats do to prolong the
agony.
There are those who believe the rate cuts are working. They think the
Fed can "steer" the economy, all done with monetary "tools". Push the
right button, pull the
right lever and all will be right with the world. Sorry, but there's
no prize for wrong thinking.
Since its creation, the Fed has had one power and one only: the Fed
can create or destroy money. Since 1913, the Fed has destroyed money at
a phenominal rate.
A dollar then is worth 5 cents now, and the Fed is trying to drop it
further. Even the power to create and destroy money is tempered by the
behavior of the markets. If
enough demand for money and loans is not present, cutting the fed
funds rate will not help. At present MZM is growing unabated and with
reckless abandon.
Greenspan will "save" the banks by aiding them in increasing their
loan loss reserves against a probable onslaught of CLEC/TELCO defaults
by creating money. But
at what cost to investors? He can buy and sell government bonds, but
too many bond purchases will lead to a falling dollar and inflation.
Will we yet turn Japanese? The Japanese expanded via inflationary
policies until they fell into what appears to be permanent recession.
Might we too suffer from
permanent recession, with a Central Bank begging people to borrow?
Japanese banks recently lowered rates from .15 to .10 with no change in
their economy. Have
the latest Japanese cuts spurred productivity, and will they do so in
America? No, because productivity depends on savings, not debt, not
borrowing. Why not just
lower rates to some magical number and have the economy take off
skyward? It's because money creation does not produce prosperity, it
doesn't create ANY benefit
to the citizens. Murray Rothbard taught that once we've created money,
there is practically no reason to create any more. Currency creation
only redistributes wealth,
making each individual unit of currency worth less. In short, although
prices and home values may rise, these results are meaningless, as
purchasing power
deteriorates. ! The only people who benefit from money creation are
those who receive the use of the "hot" money first, before the
purchasing power for all of us drops.
We do not benefit from money creation, it's usually always only the
banks who receive the bennies. Government receives more in taxation, but
even the government's
purchasing power declines.
Don't we need tons of new money when the economy is weak? No way. The
economy is weak because of the previous boom period. That boom was out
of all
proportion to savings. The madness since '96 has been funded with
money expansion and debt creation. Those who have followed what I've
said for a long time, have
heard me refer to fudged government figures and the growth of $1 in
GDP requiring $4 of debt. That's an unjustified expansion which went way
too far, and
can NEVER be justified. The proper course for the Fed is to allow the
correction to continue, so we can then go forward with some economic
balance. At some point
failure must be allowed to clear the economy of the inefficient.
Prolonging the inevitable will make it worse, much worse.
The Fed is trying to refuse to allow a correction, the politicians
seek reelection, the public, being poorly educated by the federal
monopoly, doesn't understand
cause-and-effect, and Wall Street gurus think cutting rates and money
expansion is a panacea for growth. Some people, many economists
included, will cease any
excuse to flood the world with dollars. This will increase tax bracket
creep and lower each person's purchasing power. Is that a formula for
recovery?
The Fed, through money creation, will decrease the value of the
dollar, allow inefficient businesses to continue operating on borrowed
funds, encourage borrowing by
debt-ridden consumers and businesses leading to massive defaults, and
create hyperinflation. We're leaving Utopia at a high rate of speed, and
still earnings are not
turning around. The Fed is a failed and anachronistic symbol of what
is wrong with America and her economy. We are far afield from capitalism
here, and risking a
socialistic sinking of what might have been a vibrant economy.
Meaningful tax cuts could have allowed consumers and businesses to pay
down some debt, but many politicians preferred recession to meaningful
tax cuts. They
wanted a dissatisfied public to change the balance of power during the
next election. Cutting redtape and overbearing bureaucratic regulations
might have improved
employment growth prospects down the road, but the government thrives
on power, they NEVER give it back in the form of individual freedom. The
Fed is determined
to undermine our economic system by tinkering to "save" it. Somethings
never change, as bureaucrats struggle to save face, rather than doing
what's right. Will all
this rate cutting and monetary expansion "save" the economy, or
ultimately wreck it? It will be a short term "fix" at best, but the
inevitable will occur, regardless of
what the fed bureaucrats do to prolong the agony.
To unsubscribe from this group, send an email to:
realtraders-unsubscribe@xxxxxxxxxxxxxxx
Your use of Yahoo! Groups is subject to http://docs.yahoo.com/info/terms/
|