Heidegger

Hi Michael, you wrote:

>The ultra-low short-term US interest rates helped to keep the economic
>interplay going after the bursting of the dot-com bubble, but they also
>opened the door to the risky, imprudent strategy of borrowing short and
>lending/investing long.

Risky yes, but imprundent no. In principle there is nothing imprudent
in “going short”, on the contrary, shorting is an excellent instrument
to weed out bad performing enterprises and as an overall strategy it is
very healthy for the economy. Excessive shorting is only a marginal
and temporary problem and in the end will be punished by the forces
of the market (see:).

>with the support of the well-meaning US electorate, that underwrote
>lower-than-market interest rates for ‘discriminated’ social groups
>to the tune of trillions. This well-meaning policy depended on the Fed
>keeping interest rates low to enable poorer house-buyers to make the
>threshold to eligibility for a mortgage.

I am still of the view that the underlying causes are to be found in the
Fed’s 20 years long policy of money pumping and low interest rates.
By increasing credit expansion and increasing the money supply, central
banks allover the world (but lead by the Fed’s example) have created a
systemic fault-line that stretched the monetary demand far beyond their
economies’ economic resources. It was this policy that has created all
previous inflation-induced boom-and-bust-cycles and that has ultimately
brought us to our current unsustainable debt levels. The sub-prime debt
crisis actually pales in comparison to the other debt bubbles still waiting
upon us, namely, the credit card debt, the overvalued stock- and bond-
markets and the immense and dubiously financed CDS-market, to name
a few, which run into trillions of dollars. To put the blame foremost at
the feet of the social policy of FM/FM is misleading and risks a further
continuation of the monetary failures which would cause economic and
political damage to the greatest possible extent.
(see: )

yours,
Jan

Posted on Sunday, October 12th, 2008 at 6:03 am
comment | rss 2.0 | trackback