Loading ...
Sorry, an error occurred while loading the content.

Re: [gang8] Exchange Rates and Economic Collapse

Expand Messages
  • Gunnar Tomasson
    Henry: ... a ... inflation. A short-cut to the bottom line on the relationship between interest rates and inflation is to consider the impact of higher/lower
    Message 1 of 13 , Dec 16, 2000
    View Source
    • 0 Attachment
      Henry:

      Re. the following:

      > I accidentally ignited a heated and inconclusive debate
      > on pkt on the conceptual relationship between inflation and interest rates
      > that degenerated into a debate on orthodox interpretations of dated
      > economics literature, most of which written before structured finance was
      a
      > reality. The huge interest swap derivatives market of recent years alone
      > has changed the classical relationship between interest rates and
      inflation.

      A short-cut to the bottom line on the relationship between interest rates
      and inflation is to consider the impact of higher/lower interest rates on
      the rate of change in the World Financial System's Assets.

      In principle, any increase therein relative to the rate of Real World
      Economic Growth would be inflationary, other things being equal.

      Gunnar
    • Henry C.K. Liu
      I think the key to the coming financial crises is the exchange value of the dollar. The question of what is the proper (least damaging) level is not an easy
      Message 2 of 13 , Dec 16, 2000
      View Source
      • 0 Attachment
        I think the key to the coming financial crises is the exchange value of the
        dollar. The question of what is the proper (least damaging) level is not an
        easy subject of common consensus. We do not have enough analytical power to
        reach an optimum agreement because the tangled web of undefined linkages
        between domestic interest rates, exchange rates, inflation, credit quality
        and availability. money supply, corporate profits, etc. is not clearly
        understood by any one. Too many informed and intelligent experts hold
        drastically different views and they and the forces they advise act on the
        basis of these differing views. Within the Fed's very competent staff, such
        confusion exists. It is interesting to note that while the Fed official
        abandoned the term "bias" and replace it with "balance of risk", bias
        continues to be used in Fed oral discussions. Larry Lindsey no doubt will be
        coming to office with his own view of the powerlessness to official to
        influence anything. I accidentally ignited a heated and inconclusive debate
        on pkt on the conceptual relationship between inflation and interest rates
        that degenerated into a debate on orthodox interpretations of dated
        economics literature, most of which written before structured finance was a
        reality. The huge interest swap derivatives market of recent years alone
        has changed the classical relationship between interest rates and inflation.

        As with the Asian Financial Crises that began in 1997, the coming collapse
        will be triggered by another break down of global exchange rates caused by
        widening domestic interest rates disparity. Much of the decade long bubble
        in the US has been built from pressures generated by an overvalued dollar
        and the release of these unsustainable pressures (because of an exhaustion
        of additional economies to sacrifice as short term fuel to keep the US
        engine running), will unleash destructive forces of raging forest fires that
        will make the 1930's look like a kitchen fire.

        Rich Harriman wrote:

        > Bill, the Fed cute rates from 6% in October 1929 to 1.5% in March-
        > April 1931, during which time gold began flowing out of the US and
        > the $US came under threat, after foreign capital and gold had flowed
        > into the US in 1928-29 following the German banking system collapse
        > and European bond bear market in 1927.
        >
        > France's attack on sterling (because of Great Britain's decision to
        > support efforts to relieve the burden of Germany's reparations
        > payments, among other things) was one of a number of factors leading
        > to the devaluation of sterling and fears that the US would follow
        > suit (which we did 2 1/2 years later under FDR); this precipitated
        > the reserve bankers to sell T-bills and commercial paper and load up
        > on gold, and for the Fed to raise rates from 1.5% to 3.5%, leading to
        > the "real" crash of the stock market, as the DJIA fell from ~150-160
        > in mid-1931 to 41-50 in July 1932.
        >
        > Events of recent years, including the Mexican and Chinese
        > devaluations in 1994, the Asian Crisis and Russian default in 1997-
        > 98, and the US bubble economy and stock market are eerily
        > reminiscence of the global financial episodes of the 1920s that led
        > up to the 1929-33 debacle.
        >
        > I suspect that we are setting up for a similar kind of event as the
        > US economy slips into recession, the Fed cuts rates, the economy
        > fails to respond, asset prices continue to fall, defaults mount and
        > the $US declines from its very overvalued level.
        >
        > Who will precipitate a run on the $US this time around? Japan?
        > Germany?
        >
      • Gunnar Tomasson
        James: ... ******** The brief answer is None of the above. For now, as in the early 1970s, the political leaders that direct these institutions and the
        Message 3 of 13 , Dec 16, 2000
        View Source
        • 0 Attachment
          James:

          Re. the following:

          > What institutions are equipped to deal with a crisis of such
          > dimensions and complexity?
          > The Group of 7/8?
          > The Bank and Fund?
          > OECD?

          ********
          The brief answer is "None of the above."

          For now, as in the early 1970s, the political leaders that direct these
          institutions and the economists on whom they depend for technical analysis
          and advice are persuaded that world monetary arrangements function best when
          left alone - at least during their service at the helm.

          At the IMF Research Department, the collapse of the Bretton Woods System and
          attendant change in official U.S. Government policy on IMF-related matters
          brought an overnight transformation of ardent fixed-exchange-rate advocates
          into flexible-exchange-rate supporters.

          At the time, I recall commenting to Research Department colleagues that,
          absent clarity with respect to the technical reasons why the Bretton Woods
          System fell apart, the IMF's embrace of floating exchange rates could not be
          predicated on technical considerations.

          ********

          > It's difficult to have much confidence in any of them.

          ********

          The problem with the IMF for the past 30 years has been - and remains -
          essentially political. There is no question in my mind that, as shown by
          the IMF's accommodation to President Nixon's 'shock' in the early 1970s,
          both IMF Management and Staff are perfectly capable of responding
          appropriately to new policy directives that circumstances may force on
          President Bush in the new year.

          ********

          > They've failed to manage even the relatively good times.
          > They don't have much capacity to manage an unprecedented crisis.

          ********

          As noted by IMF Deputy Managing Director Stanley Fischer in a paper written
          on the occasion of its fiftieth anniversary, the IMF has had NO management
          role with respect to the world monetary system since the mid-1970s.
          Instead, its principal role has been reduced to that of ad hoc improvisation
          in response to whatever system-threatening problems may surface from time to
          time.

          If the chickens hatched during the post-Bretton Woods era come home to roost
          in 2001, the IMF will find itself once again side-lined by events brought on
          (a) by the failure of U.S. Governments since the 1960s to abide by the
          principle of collective decision-making called for in the IMF's Articles of
          Agreement and (b) by acceptance thereof on the part of other IMF members.

          ********

          > All of them together, just as much as separately, are likely to
          > introduce even more chaos into an already chaotic situation.
          > The outcome of multilateral cooperation is likely to be indecision -
          > or panic decisions that again only hasten our slide down an already
          > much too slippery slope.
          > Will we end up with deep, long-term depression or will the efforts to
          > avoid it launch us into world-wide hyper-inflation?

          ********

          "There are two ways to be sorry," Lord Thomas Balogh told senior IMF staff
          in the mid-1980s in an address entitled "Why Monetarism is Destroying
          Capitalism" - "one can be sorry when one sees trouble coming and one can be
          sorry when trouble comes. The IMF," he suggested, "has chosen to be sorry
          when trouble comes."

          In "destroying capitalism" as we have known it for the past thirty years,
          "monetarism" will destroy itself.

          In this respect, the coming "trouble" will pave the way for - indeed, will
          demand - reconstruction of world monetary arrangements along new and
          different lines - those of the Creditary Approach to Money.

          Gunnar



          ----- Original Message -----
          From: "schulte-baeuminghaus" <cresscourt@...>
          To: <gang8@egroups.com>
          Sent: Saturday, December 16, 2000 5:32 PM
          Subject: Re: [gang8] Exchange Rates and Economic Collapse


          > Henry,
          >
          > While I can agree with this, I am struggling to conceive what the Fed
          > and the new Administration will do. I assume Clinton will be gone
          > before the crash really forces action, although I could still be wrong
          > on that. Events could move very swiftly.
          > I assume they will start with some standard routine reaction - a small
          > cut in interest rates, some talking the situation up etc. As the
          > crisis mounts, they'll try more and more desperate measures.
          > But what?
          > The dimensions of the crisis come in large part from the massive
          > derivatives trading of recent years. What can anyone do about that in
          > the short term? Wouldn't an attempt to do anything only make matters
          > worse - if they could be worse? The time to deal with the derivatives
          > problem was long ago. We have done nothing.
          > To manage the derivatives predicament now must be a long-term
          > exercise, mustn't it? Over five or ten years? Or more?
          > But what do Greenspan and (say) Lindsey do in the desperate days of
          > (say) the first six months of 2001?
          > They won't be able to sit it out, will they? The political fallout -
          > to say nothing of the economic and social distress - will be too great
          > for any Administration just to sit and watch while collapse
          > degenerates into catastrophe.
          > But what can they do that won't make things even more dreadful?
          > All governments/central banks will pull their favourite levers - which
          > these days consist of little more than interest rates.
          > They'll act separately, at least in the first instance.
          > But presumably there will be an attempt at multilateral coordination -
          > multilateral agreement on measures to combat the crisis. Where will
          > this take place?
          > What institutions are equipped to deal with a crisis of such
          > dimensions and complexity?
          > The Group of 7/8?
          > The Bank and Fund?
          > OECD?
          > It's difficult to have much confidence in any of them.
          > They've failed to manage even the relatively good times.
          > They don't have much capacity to manage an unprecedented crisis.
          > All of them together, just as much as separately, are likely to
          > introduce even more chaos into an already chaotic situation.
          > The outcome of multilateral cooperation is likely to be indecision -
          > or panic decisions that again only hasten our slide down an already
          > much too slippery slope.
          > Will we end up with deep, long-term depression or will the efforts to
          > avoid it launch us into world-wide hyper-inflation?
          > Do you, Henry, or others have any ideas on where we'll come out on
          > these very tough questions?
          >
          > James Cumes
          >
          >
          > ----------
          > >From: "Henry C.K. Liu" <hliu@...>
          > >To: lwside1@egroups.com, "pkt@..." <pkt@...>,
          > "gang8@egroups.com" <gang8@egroups.com>
          > >Subject: [gang8] Exchange Rates and Economic Collapse
          > >Date: Sat, Dec 16, 2000, 7:33 pm
          > >
          >
          > > I think the key to the coming financial crises is the exchange value of
          the
          > > dollar. The question of what is the proper (least damaging) level is
          not an
          > > easy subject of common consensus. We do not have enough analytical
          power to
          > > reach an optimum agreement because the tangled web of undefined linkages
          > > between domestic interest rates, exchange rates, inflation, credit
          quality
          > > and availability. money supply, corporate profits, etc. is not clearly
          > > understood by any one. Too many informed and intelligent experts hold
          > > drastically different views and they and the forces they advise act on
          the
          > > basis of these differing views. Within the Fed's very competent staff,
          such
          > > confusion exists. It is interesting to note that while the Fed official
          > > abandoned the term "bias" and replace it with "balance of risk", bias
          > > continues to be used in Fed oral discussions. Larry Lindsey no doubt
          will be
          > > coming to office with his own view of the powerlessness to official to
          > > influence anything. I accidentally ignited a heated and inconclusive
          debate
          > > on pkt on the conceptual relationship between inflation and interest
          rates
          > > that degenerated into a debate on orthodox interpretations of dated
          > > economics literature, most of which written before structured finance
          was a
          > > reality. The huge interest swap derivatives market of recent years
          alone
          > > has changed the classical relationship between interest rates and
          inflation.
          > >
          > > As with the Asian Financial Crises that began in 1997, the coming
          collapse
          > > will be triggered by another break down of global exchange rates caused
          by
          > > widening domestic interest rates disparity. Much of the decade long
          bubble
          > > in the US has been built from pressures generated by an overvalued
          dollar
          > > and the release of these unsustainable pressures (because of an
          exhaustion
          > > of additional economies to sacrifice as short term fuel to keep the US
          > > engine running), will unleash destructive forces of raging forest fires
          that
          > > will make the 1930's look like a kitchen fire.
          > >
          > > Rich Harriman wrote:
          > >
          > >> Bill, the Fed cute rates from 6% in October 1929 to 1.5% in March-
          > >> April 1931, during which time gold began flowing out of the US and
          > >> the $US came under threat, after foreign capital and gold had flowed
          > >> into the US in 1928-29 following the German banking system collapse
          > >> and European bond bear market in 1927.
          > >>
          > >> France's attack on sterling (because of Great Britain's decision to
          > >> support efforts to relieve the burden of Germany's reparations
          > >> payments, among other things) was one of a number of factors leading
          > >> to the devaluation of sterling and fears that the US would follow
          > >> suit (which we did 2 1/2 years later under FDR); this precipitated
          > >> the reserve bankers to sell T-bills and commercial paper and load up
          > >> on gold, and for the Fed to raise rates from 1.5% to 3.5%, leading to
          > >> the "real" crash of the stock market, as the DJIA fell from ~150-160
          > >> in mid-1931 to 41-50 in July 1932.
          > >>
          > >> Events of recent years, including the Mexican and Chinese
          > >> devaluations in 1994, the Asian Crisis and Russian default in 1997-
          > >> 98, and the US bubble economy and stock market are eerily
          > >> reminiscence of the global financial episodes of the 1920s that led
          > >> up to the 1929-33 debacle.
          > >>
          > >> I suspect that we are setting up for a similar kind of event as the
          > >> US economy slips into recession, the Fed cuts rates, the economy
          > >> fails to respond, asset prices continue to fall, defaults mount and
          > >> the $US declines from its very overvalued level.
          > >>
          > >> Who will precipitate a run on the $US this time around? Japan?
          > >> Germany?
          > >>
          > >
          > >
          > >
          > > The Gang8 is devoted to Creditary Economics
          > >
          >
          >
          > The Gang8 is devoted to Creditary Economics
          >
          >
          >
        • schulte-baeuminghaus
          Henry, While I can agree with this, I am struggling to conceive what the Fed and the new Administration will do. I assume Clinton will be gone before the crash
          Message 4 of 13 , Dec 16, 2000
          View Source
          • 0 Attachment
            Henry,

            While I can agree with this, I am struggling to conceive what the Fed
            and the new Administration will do. I assume Clinton will be gone
            before the crash really forces action, although I could still be wrong
            on that. Events could move very swiftly.
            I assume they will start with some standard routine reaction - a small
            cut in interest rates, some talking the situation up etc. As the
            crisis mounts, they'll try more and more desperate measures.
            But what?
            The dimensions of the crisis come in large part from the massive
            derivatives trading of recent years. What can anyone do about that in
            the short term? Wouldn't an attempt to do anything only make matters
            worse - if they could be worse? The time to deal with the derivatives
            problem was long ago. We have done nothing.
            To manage the derivatives predicament now must be a long-term
            exercise, mustn't it? Over five or ten years? Or more?
            But what do Greenspan and (say) Lindsey do in the desperate days of
            (say) the first six months of 2001?
            They won't be able to sit it out, will they? The political fallout -
            to say nothing of the economic and social distress - will be too great
            for any Administration just to sit and watch while collapse
            degenerates into catastrophe.
            But what can they do that won't make things even more dreadful?
            All governments/central banks will pull their favourite levers - which
            these days consist of little more than interest rates.
            They'll act separately, at least in the first instance.
            But presumably there will be an attempt at multilateral coordination -
            multilateral agreement on measures to combat the crisis. Where will
            this take place?
            What institutions are equipped to deal with a crisis of such
            dimensions and complexity?
            The Group of 7/8?
            The Bank and Fund?
            OECD?
            It's difficult to have much confidence in any of them.
            They've failed to manage even the relatively good times.
            They don't have much capacity to manage an unprecedented crisis.
            All of them together, just as much as separately, are likely to
            introduce even more chaos into an already chaotic situation.
            The outcome of multilateral cooperation is likely to be indecision -
            or panic decisions that again only hasten our slide down an already
            much too slippery slope.
            Will we end up with deep, long-term depression or will the efforts to
            avoid it launch us into world-wide hyper-inflation?
            Do you, Henry, or others have any ideas on where we'll come out on
            these very tough questions?

            James Cumes


            ----------
            >From: "Henry C.K. Liu" <hliu@...>
            >To: lwside1@egroups.com, "pkt@..." <pkt@...>,
            "gang8@egroups.com" <gang8@egroups.com>
            >Subject: [gang8] Exchange Rates and Economic Collapse
            >Date: Sat, Dec 16, 2000, 7:33 pm
            >

            > I think the key to the coming financial crises is the exchange value of the
            > dollar. The question of what is the proper (least damaging) level is not an
            > easy subject of common consensus. We do not have enough analytical power to
            > reach an optimum agreement because the tangled web of undefined linkages
            > between domestic interest rates, exchange rates, inflation, credit quality
            > and availability. money supply, corporate profits, etc. is not clearly
            > understood by any one. Too many informed and intelligent experts hold
            > drastically different views and they and the forces they advise act on the
            > basis of these differing views. Within the Fed's very competent staff, such
            > confusion exists. It is interesting to note that while the Fed official
            > abandoned the term "bias" and replace it with "balance of risk", bias
            > continues to be used in Fed oral discussions. Larry Lindsey no doubt will be
            > coming to office with his own view of the powerlessness to official to
            > influence anything. I accidentally ignited a heated and inconclusive debate
            > on pkt on the conceptual relationship between inflation and interest rates
            > that degenerated into a debate on orthodox interpretations of dated
            > economics literature, most of which written before structured finance was a
            > reality. The huge interest swap derivatives market of recent years alone
            > has changed the classical relationship between interest rates and inflation.
            >
            > As with the Asian Financial Crises that began in 1997, the coming collapse
            > will be triggered by another break down of global exchange rates caused by
            > widening domestic interest rates disparity. Much of the decade long bubble
            > in the US has been built from pressures generated by an overvalued dollar
            > and the release of these unsustainable pressures (because of an exhaustion
            > of additional economies to sacrifice as short term fuel to keep the US
            > engine running), will unleash destructive forces of raging forest fires that
            > will make the 1930's look like a kitchen fire.
            >
            > Rich Harriman wrote:
            >
            >> Bill, the Fed cute rates from 6% in October 1929 to 1.5% in March-
            >> April 1931, during which time gold began flowing out of the US and
            >> the $US came under threat, after foreign capital and gold had flowed
            >> into the US in 1928-29 following the German banking system collapse
            >> and European bond bear market in 1927.
            >>
            >> France's attack on sterling (because of Great Britain's decision to
            >> support efforts to relieve the burden of Germany's reparations
            >> payments, among other things) was one of a number of factors leading
            >> to the devaluation of sterling and fears that the US would follow
            >> suit (which we did 2 1/2 years later under FDR); this precipitated
            >> the reserve bankers to sell T-bills and commercial paper and load up
            >> on gold, and for the Fed to raise rates from 1.5% to 3.5%, leading to
            >> the "real" crash of the stock market, as the DJIA fell from ~150-160
            >> in mid-1931 to 41-50 in July 1932.
            >>
            >> Events of recent years, including the Mexican and Chinese
            >> devaluations in 1994, the Asian Crisis and Russian default in 1997-
            >> 98, and the US bubble economy and stock market are eerily
            >> reminiscence of the global financial episodes of the 1920s that led
            >> up to the 1929-33 debacle.
            >>
            >> I suspect that we are setting up for a similar kind of event as the
            >> US economy slips into recession, the Fed cuts rates, the economy
            >> fails to respond, asset prices continue to fall, defaults mount and
            >> the $US declines from its very overvalued level.
            >>
            >> Who will precipitate a run on the $US this time around? Japan?
            >> Germany?
            >>
            >
            >
            >
            > The Gang8 is devoted to Creditary Economics
            >
          • Gunnar Tomasson
            Henry: The phrase other things being equal does NOT imply that interest rate changes will not impact other economic variables. It is technical jargon for in
            Message 5 of 13 , Dec 16, 2000
            View Source
            • 0 Attachment
              Henry:

              The phrase "other things being equal" does NOT imply that interest rate
              changes will not impact other economic variables.

              It is technical jargon for "in and of itself".

              Gunnar


              ----- Original Message -----
              From: "Henry C.K. Liu" <hliu@...>
              To: <gang8@egroups.com>
              Sent: Saturday, December 16, 2000 9:26 PM
              Subject: Re: [gang8] Exchange Rates and Economic Collapse


              > "In principle, any increase therein relative to the rate of Real World
              > Economic Growth would be inflationary, other things being equal."
              >
              > The problem is in the four words I see in every post over at pkt: "other
              things
              > being equal".
              > Any change in interest rate changes all "other things". So it's like
              saying
              > that earthquakes have calming effects, provided vibration is not measured,
              > because earthquakes release latent platonic friction and directional
              pressure.
              > At this moment, there is no doubt that high interest rates will lead to
              drastic
              > deflation in the US. In fact, even if Greenspan lowers ff rate to zero,
              he most
              > likely cannot stop the onslaught of deflation already underway.
              >
              > Henry
              >
              > Gunnar Tomasson wrote : other things being equal"
              >
              > > Henry:
              > >
              > > Re. the following:
              > >
              > > > I accidentally ignited a heated and inconclusive debate
              > > > on pkt on the conceptual relationship between inflation and interest
              rates
              > > > that degenerated into a debate on orthodox interpretations of dated
              > > > economics literature, most of which written before structured finance
              was
              > > a
              > > > reality. The huge interest swap derivatives market of recent years
              alone
              > > > has changed the classical relationship between interest rates and
              > > inflation.
              > >
              > > A short-cut to the bottom line on the relationship between interest
              rates
              > > and inflation is to consider the impact of higher/lower interest rates
              on
              > > the rate of change in the World Financial System's Assets.
              > >
              > > In principle, any increase therein relative to the rate of Real World
              > > Economic Growth would be inflationary, other things being equal.
              > >
              > > Gunnar
              > >
              > >
              > > The Gang8 is devoted to Creditary Economics
              >
              >
              >
              > The Gang8 is devoted to Creditary Economics
              >
              >
              >
            • Henry C.K. Liu
              In principle, any increase therein relative to the rate of Real World Economic Growth would be inflationary, other things being equal. The problem is in the
              Message 6 of 13 , Dec 16, 2000
              View Source
              • 0 Attachment
                "In principle, any increase therein relative to the rate of Real World
                Economic Growth would be inflationary, other things being equal."

                The problem is in the four words I see in every post over at pkt: "other things
                being equal".
                Any change in interest rate changes all "other things". So it's like saying
                that earthquakes have calming effects, provided vibration is not measured,
                because earthquakes release latent platonic friction and directional pressure.
                At this moment, there is no doubt that high interest rates will lead to drastic
                deflation in the US. In fact, even if Greenspan lowers ff rate to zero, he most
                likely cannot stop the onslaught of deflation already underway.

                Henry

                Gunnar Tomasson wrote : other things being equal"

                > Henry:
                >
                > Re. the following:
                >
                > > I accidentally ignited a heated and inconclusive debate
                > > on pkt on the conceptual relationship between inflation and interest rates
                > > that degenerated into a debate on orthodox interpretations of dated
                > > economics literature, most of which written before structured finance was
                > a
                > > reality. The huge interest swap derivatives market of recent years alone
                > > has changed the classical relationship between interest rates and
                > inflation.
                >
                > A short-cut to the bottom line on the relationship between interest rates
                > and inflation is to consider the impact of higher/lower interest rates on
                > the rate of change in the World Financial System's Assets.
                >
                > In principle, any increase therein relative to the rate of Real World
                > Economic Growth would be inflationary, other things being equal.
                >
                > Gunnar
                >
                >
                > The Gang8 is devoted to Creditary Economics
              • Gunnar Tomasson
                Henry: There is nothing derivative about changes in the Fed s interest rate. Gunnar ... From: Henry C.K. Liu To:
                Message 7 of 13 , Dec 16, 2000
                View Source
                • 0 Attachment
                  Henry:

                  There is nothing "derivative" about changes in the Fed's interest rate.

                  Gunnar


                  ----- Original Message -----
                  From: "Henry C.K. Liu" <hliu@...>
                  To: <gang8@egroups.com>
                  Sent: Saturday, December 16, 2000 11:50 PM
                  Subject: Re: [gang8] Exchange Rates and Economic Collapse


                  > Yes Gunnar, but interest rate is a derivative, it cannot be "in and of
                  itself."
                  > You of all people, who are so well versed in the laws of physics, must
                  recognize
                  > that.
                  >
                  > Henry
                  >
                  > Gunnar Tomasson wrote:
                  >
                  > > Henry:
                  > >
                  > > The phrase "other things being equal" does NOT imply that interest rate
                  > > changes will not impact other economic variables.
                  > >
                  > > It is technical jargon for "in and of itself".
                  > >
                  > > Gunnar
                  > >
                  > > ----- Original Message -----
                  > > From: "Henry C.K. Liu" <hliu@...>
                  > > To: <gang8@egroups.com>
                  > > Sent: Saturday, December 16, 2000 9:26 PM
                  > > Subject: Re: [gang8] Exchange Rates and Economic Collapse
                  > >
                  > > > "In principle, any increase therein relative to the rate of Real World
                  > > > Economic Growth would be inflationary, other things being equal."
                  > > >
                  > > > The problem is in the four words I see in every post over at pkt:
                  "other
                  > > things
                  > > > being equal".
                  > > > Any change in interest rate changes all "other things". So it's like
                  > > saying
                  > > > that earthquakes have calming effects, provided vibration is not
                  measured,
                  > > > because earthquakes release latent platonic friction and directional
                  > > pressure.
                  > > > At this moment, there is no doubt that high interest rates will lead
                  to
                  > > drastic
                  > > > deflation in the US. In fact, even if Greenspan lowers ff rate to
                  zero,
                  > > he most
                  > > > likely cannot stop the onslaught of deflation already underway.
                  > > >
                  > > > Henry
                  > > >
                  > > > Gunnar Tomasson wrote : other things being equal"
                  > > >
                  > > > > Henry:
                  > > > >
                  > > > > Re. the following:
                  > > > >
                  > > > > > I accidentally ignited a heated and inconclusive debate
                  > > > > > on pkt on the conceptual relationship between inflation and
                  interest
                  > > rates
                  > > > > > that degenerated into a debate on orthodox interpretations of
                  dated
                  > > > > > economics literature, most of which written before structured
                  finance
                  > > was
                  > > > > a
                  > > > > > reality. The huge interest swap derivatives market of recent
                  years
                  > > alone
                  > > > > > has changed the classical relationship between interest rates and
                  > > > > inflation.
                  > > > >
                  > > > > A short-cut to the bottom line on the relationship between interest
                  > > rates
                  > > > > and inflation is to consider the impact of higher/lower interest
                  rates
                  > > on
                  > > > > the rate of change in the World Financial System's Assets.
                  > > > >
                  > > > > In principle, any increase therein relative to the rate of Real
                  World
                  > > > > Economic Growth would be inflationary, other things being equal.
                  > > > >
                  > > > > Gunnar
                  > > > >
                  > > > >
                  > > > > The Gang8 is devoted to Creditary Economics
                  > > >
                  > > >
                  > > >
                  > > > The Gang8 is devoted to Creditary Economics
                  > > >
                  > > >
                  > > >
                  > >
                  > >
                  > > The Gang8 is devoted to Creditary Economics
                  >
                  >
                  >
                  > The Gang8 is devoted to Creditary Economics
                  >
                  >
                  >
                • Gunnar Tomasson
                  ... It is derivative of Greenspan s mood of the moment. Gunnar ... From: Henry C.K. Liu To: Sent: Sunday, December
                  Message 8 of 13 , Dec 16, 2000
                  View Source
                  • 0 Attachment
                    Henry:

                    > Is it whimsical then?

                    It is derivative of Greenspan's mood of the moment.

                    Gunnar

                    ----- Original Message -----
                    From: "Henry C.K. Liu" <hliu@...>
                    To: <gang8@egroups.com>
                    Sent: Sunday, December 17, 2000 2:06 AM
                    Subject: Re: [gang8] Exchange Rates and Economic Collapse


                    > Is it whimsical then? The Fed sets the ff rate based on its judgement of
                    > inflation pressure. does it not? Thus the ff rate is "derived" from the
                    Fed's
                    > judge ment of the state of the economy. At least that is how the Fed
                    explains
                    > it moves. Long term rates are essentially indexes of credit market
                    sentiment.
                    > It does not exist "in and of itself". No one nmakes interest rate
                    decision (to
                    > borrow or not) independent of business prospects and or inflation
                    expectations.
                    > People do not borrow because rates are high or low. They borrow when
                    interest
                    > rate leaves a marginal advantage from expected yields on the use of the
                    money.
                    > As Zeckendorf used to say: he rather be alive at 20% than dead at 2%.
                    >
                    > Henry
                    >
                    > Gunnar Tomasson wrote:
                    >
                    > > Henry:
                    > >
                    > > There is nothing "derivative" about changes in the Fed's interest rate.
                    > >
                    > > Gunnar
                    > >
                    > > ----- Original Message -----
                    > > From: "Henry C.K. Liu" <hliu@...>
                    > > To: <gang8@egroups.com>
                    > > Sent: Saturday, December 16, 2000 11:50 PM
                    > > Subject: Re: [gang8] Exchange Rates and Economic Collapse
                    > >
                    > > > Yes Gunnar, but interest rate is a derivative, it cannot be "in and of
                    > > itself."
                    > > > You of all people, who are so well versed in the laws of physics, must
                    > > recognize
                    > > > that.
                    > > >
                    > > > Henry
                    > > >
                    > > > Gunnar Tomasson wrote:
                    > > >
                    > > > > Henry:
                    > > > >
                    > > > > The phrase "other things being equal" does NOT imply that interest
                    rate
                    > > > > changes will not impact other economic variables.
                    > > > >
                    > > > > It is technical jargon for "in and of itself".
                    > > > >
                    > > > > Gunnar
                    > > > >
                    > > > > ----- Original Message -----
                    > > > > From: "Henry C.K. Liu" <hliu@...>
                    > > > > To: <gang8@egroups.com>
                    > > > > Sent: Saturday, December 16, 2000 9:26 PM
                    > > > > Subject: Re: [gang8] Exchange Rates and Economic Collapse
                    > > > >
                    > > > > > "In principle, any increase therein relative to the rate of Real
                    World
                    > > > > > Economic Growth would be inflationary, other things being equal."
                    > > > > >
                    > > > > > The problem is in the four words I see in every post over at pkt:
                    > > "other
                    > > > > things
                    > > > > > being equal".
                    > > > > > Any change in interest rate changes all "other things". So it's
                    like
                    > > > > saying
                    > > > > > that earthquakes have calming effects, provided vibration is not
                    > > measured,
                    > > > > > because earthquakes release latent platonic friction and
                    directional
                    > > > > pressure.
                    > > > > > At this moment, there is no doubt that high interest rates will
                    lead
                    > > to
                    > > > > drastic
                    > > > > > deflation in the US. In fact, even if Greenspan lowers ff rate to
                    > > zero,
                    > > > > he most
                    > > > > > likely cannot stop the onslaught of deflation already underway.
                    > > > > >
                    > > > > > Henry
                    > > > > >
                    > > > > > Gunnar Tomasson wrote : other things being equal"
                    > > > > >
                    > > > > > > Henry:
                    > > > > > >
                    > > > > > > Re. the following:
                    > > > > > >
                    > > > > > > > I accidentally ignited a heated and inconclusive debate
                    > > > > > > > on pkt on the conceptual relationship between inflation and
                    > > interest
                    > > > > rates
                    > > > > > > > that degenerated into a debate on orthodox interpretations of
                    > > dated
                    > > > > > > > economics literature, most of which written before structured
                    > > finance
                    > > > > was
                    > > > > > > a
                    > > > > > > > reality. The huge interest swap derivatives market of recent
                    > > years
                    > > > > alone
                    > > > > > > > has changed the classical relationship between interest rates
                    and
                    > > > > > > inflation.
                    > > > > > >
                    > > > > > > A short-cut to the bottom line on the relationship between
                    interest
                    > > > > rates
                    > > > > > > and inflation is to consider the impact of higher/lower interest
                    > > rates
                    > > > > on
                    > > > > > > the rate of change in the World Financial System's Assets.
                    > > > > > >
                    > > > > > > In principle, any increase therein relative to the rate of Real
                    > > World
                    > > > > > > Economic Growth would be inflationary, other things being equal.
                    > > > > > >
                    > > > > > > Gunnar
                    > > > > > >
                    > > > > > >
                    > > > > > > The Gang8 is devoted to Creditary Economics
                    > > > > >
                    > > > > >
                    > > > > >
                    > > > > > The Gang8 is devoted to Creditary Economics
                    > > > > >
                    > > > > >
                    > > > > >
                    > > > >
                    > > > >
                    > > > > The Gang8 is devoted to Creditary Economics
                    > > >
                    > > >
                    > > >
                    > > > The Gang8 is devoted to Creditary Economics
                    > > >
                    > > >
                    > > >
                    > >
                    > >
                    > > The Gang8 is devoted to Creditary Economics
                    >
                    >
                    >
                    > The Gang8 is devoted to Creditary Economics
                    >
                    >
                    >
                  • Henry C.K. Liu
                    Yes Gunnar, but interest rate is a derivative, it cannot be in and of itself. You of all people, who are so well versed in the laws of physics, must
                    Message 9 of 13 , Dec 16, 2000
                    View Source
                    • 0 Attachment
                      Yes Gunnar, but interest rate is a derivative, it cannot be "in and of itself."
                      You of all people, who are so well versed in the laws of physics, must recognize
                      that.

                      Henry

                      Gunnar Tomasson wrote:

                      > Henry:
                      >
                      > The phrase "other things being equal" does NOT imply that interest rate
                      > changes will not impact other economic variables.
                      >
                      > It is technical jargon for "in and of itself".
                      >
                      > Gunnar
                      >
                      > ----- Original Message -----
                      > From: "Henry C.K. Liu" <hliu@...>
                      > To: <gang8@egroups.com>
                      > Sent: Saturday, December 16, 2000 9:26 PM
                      > Subject: Re: [gang8] Exchange Rates and Economic Collapse
                      >
                      > > "In principle, any increase therein relative to the rate of Real World
                      > > Economic Growth would be inflationary, other things being equal."
                      > >
                      > > The problem is in the four words I see in every post over at pkt: "other
                      > things
                      > > being equal".
                      > > Any change in interest rate changes all "other things". So it's like
                      > saying
                      > > that earthquakes have calming effects, provided vibration is not measured,
                      > > because earthquakes release latent platonic friction and directional
                      > pressure.
                      > > At this moment, there is no doubt that high interest rates will lead to
                      > drastic
                      > > deflation in the US. In fact, even if Greenspan lowers ff rate to zero,
                      > he most
                      > > likely cannot stop the onslaught of deflation already underway.
                      > >
                      > > Henry
                      > >
                      > > Gunnar Tomasson wrote : other things being equal"
                      > >
                      > > > Henry:
                      > > >
                      > > > Re. the following:
                      > > >
                      > > > > I accidentally ignited a heated and inconclusive debate
                      > > > > on pkt on the conceptual relationship between inflation and interest
                      > rates
                      > > > > that degenerated into a debate on orthodox interpretations of dated
                      > > > > economics literature, most of which written before structured finance
                      > was
                      > > > a
                      > > > > reality. The huge interest swap derivatives market of recent years
                      > alone
                      > > > > has changed the classical relationship between interest rates and
                      > > > inflation.
                      > > >
                      > > > A short-cut to the bottom line on the relationship between interest
                      > rates
                      > > > and inflation is to consider the impact of higher/lower interest rates
                      > on
                      > > > the rate of change in the World Financial System's Assets.
                      > > >
                      > > > In principle, any increase therein relative to the rate of Real World
                      > > > Economic Growth would be inflationary, other things being equal.
                      > > >
                      > > > Gunnar
                      > > >
                      > > >
                      > > > The Gang8 is devoted to Creditary Economics
                      > >
                      > >
                      > >
                      > > The Gang8 is devoted to Creditary Economics
                      > >
                      > >
                      > >
                      >
                      >
                      > The Gang8 is devoted to Creditary Economics
                    • Henry C.K. Liu
                      Is it whimsical then? The Fed sets the ff rate based on its judgement of inflation pressure. does it not? Thus the ff rate is derived from the Fed s judge
                      Message 10 of 13 , Dec 16, 2000
                      View Source
                      • 0 Attachment
                        Is it whimsical then? The Fed sets the ff rate based on its judgement of
                        inflation pressure. does it not? Thus the ff rate is "derived" from the Fed's
                        judge ment of the state of the economy. At least that is how the Fed explains
                        it moves. Long term rates are essentially indexes of credit market sentiment.
                        It does not exist "in and of itself". No one nmakes interest rate decision (to
                        borrow or not) independent of business prospects and or inflation expectations.
                        People do not borrow because rates are high or low. They borrow when interest
                        rate leaves a marginal advantage from expected yields on the use of the money.
                        As Zeckendorf used to say: he rather be alive at 20% than dead at 2%.

                        Henry

                        Gunnar Tomasson wrote:

                        > Henry:
                        >
                        > There is nothing "derivative" about changes in the Fed's interest rate.
                        >
                        > Gunnar
                        >
                        > ----- Original Message -----
                        > From: "Henry C.K. Liu" <hliu@...>
                        > To: <gang8@egroups.com>
                        > Sent: Saturday, December 16, 2000 11:50 PM
                        > Subject: Re: [gang8] Exchange Rates and Economic Collapse
                        >
                        > > Yes Gunnar, but interest rate is a derivative, it cannot be "in and of
                        > itself."
                        > > You of all people, who are so well versed in the laws of physics, must
                        > recognize
                        > > that.
                        > >
                        > > Henry
                        > >
                        > > Gunnar Tomasson wrote:
                        > >
                        > > > Henry:
                        > > >
                        > > > The phrase "other things being equal" does NOT imply that interest rate
                        > > > changes will not impact other economic variables.
                        > > >
                        > > > It is technical jargon for "in and of itself".
                        > > >
                        > > > Gunnar
                        > > >
                        > > > ----- Original Message -----
                        > > > From: "Henry C.K. Liu" <hliu@...>
                        > > > To: <gang8@egroups.com>
                        > > > Sent: Saturday, December 16, 2000 9:26 PM
                        > > > Subject: Re: [gang8] Exchange Rates and Economic Collapse
                        > > >
                        > > > > "In principle, any increase therein relative to the rate of Real World
                        > > > > Economic Growth would be inflationary, other things being equal."
                        > > > >
                        > > > > The problem is in the four words I see in every post over at pkt:
                        > "other
                        > > > things
                        > > > > being equal".
                        > > > > Any change in interest rate changes all "other things". So it's like
                        > > > saying
                        > > > > that earthquakes have calming effects, provided vibration is not
                        > measured,
                        > > > > because earthquakes release latent platonic friction and directional
                        > > > pressure.
                        > > > > At this moment, there is no doubt that high interest rates will lead
                        > to
                        > > > drastic
                        > > > > deflation in the US. In fact, even if Greenspan lowers ff rate to
                        > zero,
                        > > > he most
                        > > > > likely cannot stop the onslaught of deflation already underway.
                        > > > >
                        > > > > Henry
                        > > > >
                        > > > > Gunnar Tomasson wrote : other things being equal"
                        > > > >
                        > > > > > Henry:
                        > > > > >
                        > > > > > Re. the following:
                        > > > > >
                        > > > > > > I accidentally ignited a heated and inconclusive debate
                        > > > > > > on pkt on the conceptual relationship between inflation and
                        > interest
                        > > > rates
                        > > > > > > that degenerated into a debate on orthodox interpretations of
                        > dated
                        > > > > > > economics literature, most of which written before structured
                        > finance
                        > > > was
                        > > > > > a
                        > > > > > > reality. The huge interest swap derivatives market of recent
                        > years
                        > > > alone
                        > > > > > > has changed the classical relationship between interest rates and
                        > > > > > inflation.
                        > > > > >
                        > > > > > A short-cut to the bottom line on the relationship between interest
                        > > > rates
                        > > > > > and inflation is to consider the impact of higher/lower interest
                        > rates
                        > > > on
                        > > > > > the rate of change in the World Financial System's Assets.
                        > > > > >
                        > > > > > In principle, any increase therein relative to the rate of Real
                        > World
                        > > > > > Economic Growth would be inflationary, other things being equal.
                        > > > > >
                        > > > > > Gunnar
                        > > > > >
                        > > > > >
                        > > > > > The Gang8 is devoted to Creditary Economics
                        > > > >
                        > > > >
                        > > > >
                        > > > > The Gang8 is devoted to Creditary Economics
                        > > > >
                        > > > >
                        > > > >
                        > > >
                        > > >
                        > > > The Gang8 is devoted to Creditary Economics
                        > >
                        > >
                        > >
                        > > The Gang8 is devoted to Creditary Economics
                        > >
                        > >
                        > >
                        >
                        >
                        > The Gang8 is devoted to Creditary Economics
                      • schulte-baeuminghaus
                        Gunnar, While we can t be other than fearful because of the prospects you reveal, what you say is valid and is the more worrying because of your experience
                        Message 11 of 13 , Dec 17, 2000
                        View Source
                        • 0 Attachment
                          Gunnar,

                          While we can't be other than fearful because of the prospects you
                          reveal, what you say is valid and is the more worrying because of your
                          experience within IMF and your insights into these issues.
                          I have just been listening to Colin Powell giving what seems like an
                          unqualified blessing to the "free market" and the "American way". I
                          like Powell but his dedication to what might be about to overwhelm us
                          is far from comforting.
                          When will the US leadership see where they are leading us? When will
                          those who follow see the folly of marching blindly into the abyss?
                          The international agencies into which we invested so much hope in the
                          years after 1945, have long been dead as we conceived them. Perhaps,
                          as you suggest the "shock" of going over the edge might revive them.
                          But we'll still be over the edge and the distress might well be
                          massive and widespread.


                          James Cumes


                          ----------
                          >From: "Gunnar Tomasson" <tomasson@...>
                          >To: "gang8" <gang8@egroups.com>
                          >Subject: Re: [gang8] Exchange Rates and Economic Collapse
                          >Date: Sat, Dec 16, 2000, 8:22 pm
                          >

                          > James:
                          >
                          > Re. the following:
                          >
                          >> What institutions are equipped to deal with a crisis of such
                          >> dimensions and complexity?
                          >> The Group of 7/8?
                          >> The Bank and Fund?
                          >> OECD?
                          >
                          > ********
                          > The brief answer is "None of the above."
                          >
                          > For now, as in the early 1970s, the political leaders that direct these
                          > institutions and the economists on whom they depend for technical analysis
                          > and advice are persuaded that world monetary arrangements function best when
                          > left alone - at least during their service at the helm.
                          >
                          > At the IMF Research Department, the collapse of the Bretton Woods System and
                          > attendant change in official U.S. Government policy on IMF-related matters
                          > brought an overnight transformation of ardent fixed-exchange-rate advocates
                          > into flexible-exchange-rate supporters.
                          >
                          > At the time, I recall commenting to Research Department colleagues that,
                          > absent clarity with respect to the technical reasons why the Bretton Woods
                          > System fell apart, the IMF's embrace of floating exchange rates could not be
                          > predicated on technical considerations.
                          >
                          > ********
                          >
                          >> It's difficult to have much confidence in any of them.
                          >
                          > ********
                          >
                          > The problem with the IMF for the past 30 years has been - and remains -
                          > essentially political. There is no question in my mind that, as shown by
                          > the IMF's accommodation to President Nixon's 'shock' in the early 1970s,
                          > both IMF Management and Staff are perfectly capable of responding
                          > appropriately to new policy directives that circumstances may force on
                          > President Bush in the new year.
                          >
                          > ********
                          >
                          >> They've failed to manage even the relatively good times.
                          >> They don't have much capacity to manage an unprecedented crisis.
                          >
                          > ********
                          >
                          > As noted by IMF Deputy Managing Director Stanley Fischer in a paper written
                          > on the occasion of its fiftieth anniversary, the IMF has had NO management
                          > role with respect to the world monetary system since the mid-1970s.
                          > Instead, its principal role has been reduced to that of ad hoc improvisation
                          > in response to whatever system-threatening problems may surface from time to
                          > time.
                          >
                          > If the chickens hatched during the post-Bretton Woods era come home to roost
                          > in 2001, the IMF will find itself once again side-lined by events brought on
                          > (a) by the failure of U.S. Governments since the 1960s to abide by the
                          > principle of collective decision-making called for in the IMF's Articles of
                          > Agreement and (b) by acceptance thereof on the part of other IMF members.
                          >
                          > ********
                          >
                          >> All of them together, just as much as separately, are likely to
                          >> introduce even more chaos into an already chaotic situation.
                          >> The outcome of multilateral cooperation is likely to be indecision -
                          >> or panic decisions that again only hasten our slide down an already
                          >> much too slippery slope.
                          >> Will we end up with deep, long-term depression or will the efforts to
                          >> avoid it launch us into world-wide hyper-inflation?
                          >
                          > ********
                          >
                          > "There are two ways to be sorry," Lord Thomas Balogh told senior IMF staff
                          > in the mid-1980s in an address entitled "Why Monetarism is Destroying
                          > Capitalism" - "one can be sorry when one sees trouble coming and one can be
                          > sorry when trouble comes. The IMF," he suggested, "has chosen to be sorry
                          > when trouble comes."
                          >
                          > In "destroying capitalism" as we have known it for the past thirty years,
                          > "monetarism" will destroy itself.
                          >
                          > In this respect, the coming "trouble" will pave the way for - indeed, will
                          > demand - reconstruction of world monetary arrangements along new and
                          > different lines - those of the Creditary Approach to Money.
                          >
                          > Gunnar
                          >
                          >
                          >
                          > ----- Original Message -----
                          > From: "schulte-baeuminghaus" <cresscourt@...>
                          > To: <gang8@egroups.com>
                          > Sent: Saturday, December 16, 2000 5:32 PM
                          > Subject: Re: [gang8] Exchange Rates and Economic Collapse
                          >
                          >
                          >> Henry,
                          >>
                          >> While I can agree with this, I am struggling to conceive what the Fed
                          >> and the new Administration will do. I assume Clinton will be gone
                          >> before the crash really forces action, although I could still be wrong
                          >> on that. Events could move very swiftly.
                          >> I assume they will start with some standard routine reaction - a small
                          >> cut in interest rates, some talking the situation up etc. As the
                          >> crisis mounts, they'll try more and more desperate measures.
                          >> But what?
                          >> The dimensions of the crisis come in large part from the massive
                          >> derivatives trading of recent years. What can anyone do about that in
                          >> the short term? Wouldn't an attempt to do anything only make matters
                          >> worse - if they could be worse? The time to deal with the derivatives
                          >> problem was long ago. We have done nothing.
                          >> To manage the derivatives predicament now must be a long-term
                          >> exercise, mustn't it? Over five or ten years? Or more?
                          >> But what do Greenspan and (say) Lindsey do in the desperate days of
                          >> (say) the first six months of 2001?
                          >> They won't be able to sit it out, will they? The political fallout -
                          >> to say nothing of the economic and social distress - will be too great
                          >> for any Administration just to sit and watch while collapse
                          >> degenerates into catastrophe.
                          >> But what can they do that won't make things even more dreadful?
                          >> All governments/central banks will pull their favourite levers - which
                          >> these days consist of little more than interest rates.
                          >> They'll act separately, at least in the first instance.
                          >> But presumably there will be an attempt at multilateral coordination -
                          >> multilateral agreement on measures to combat the crisis. Where will
                          >> this take place?
                          >> What institutions are equipped to deal with a crisis of such
                          >> dimensions and complexity?
                          >> The Group of 7/8?
                          >> The Bank and Fund?
                          >> OECD?
                          >> It's difficult to have much confidence in any of them.
                          >> They've failed to manage even the relatively good times.
                          >> They don't have much capacity to manage an unprecedented crisis.
                          >> All of them together, just as much as separately, are likely to
                          >> introduce even more chaos into an already chaotic situation.
                          >> The outcome of multilateral cooperation is likely to be indecision -
                          >> or panic decisions that again only hasten our slide down an already
                          >> much too slippery slope.
                          >> Will we end up with deep, long-term depression or will the efforts to
                          >> avoid it launch us into world-wide hyper-inflation?
                          >> Do you, Henry, or others have any ideas on where we'll come out on
                          >> these very tough questions?
                          >>
                          >> James Cumes
                          >>
                          >>
                          >> ----------
                          >> >From: "Henry C.K. Liu" <hliu@...>
                          >> >To: lwside1@egroups.com, "pkt@..." <pkt@...>,
                          >> "gang8@egroups.com" <gang8@egroups.com>
                          >> >Subject: [gang8] Exchange Rates and Economic Collapse
                          >> >Date: Sat, Dec 16, 2000, 7:33 pm
                          >> >
                          >>
                          >> > I think the key to the coming financial crises is the exchange value of
                          > the
                          >> > dollar. The question of what is the proper (least damaging) level is
                          > not an
                          >> > easy subject of common consensus. We do not have enough analytical
                          > power to
                          >> > reach an optimum agreement because the tangled web of undefined linkages
                          >> > between domestic interest rates, exchange rates, inflation, credit
                          > quality
                          >> > and availability. money supply, corporate profits, etc. is not clearly
                          >> > understood by any one. Too many informed and intelligent experts hold
                          >> > drastically different views and they and the forces they advise act on
                          > the
                          >> > basis of these differing views. Within the Fed's very competent staff,
                          > such
                          >> > confusion exists. It is interesting to note that while the Fed official
                          >> > abandoned the term "bias" and replace it with "balance of risk", bias
                          >> > continues to be used in Fed oral discussions. Larry Lindsey no doubt
                          > will be
                          >> > coming to office with his own view of the powerlessness to official to
                          >> > influence anything. I accidentally ignited a heated and inconclusive
                          > debate
                          >> > on pkt on the conceptual relationship between inflation and interest
                          > rates
                          >> > that degenerated into a debate on orthodox interpretations of dated
                          >> > economics literature, most of which written before structured finance
                          > was a
                          >> > reality. The huge interest swap derivatives market of recent years
                          > alone
                          >> > has changed the classical relationship between interest rates and
                          > inflation.
                          >> >
                          >> > As with the Asian Financial Crises that began in 1997, the coming
                          > collapse
                          >> > will be triggered by another break down of global exchange rates caused
                          > by
                          >> > widening domestic interest rates disparity. Much of the decade long
                          > bubble
                          >> > in the US has been built from pressures generated by an overvalued
                          > dollar
                          >> > and the release of these unsustainable pressures (because of an
                          > exhaustion
                          >> > of additional economies to sacrifice as short term fuel to keep the US
                          >> > engine running), will unleash destructive forces of raging forest fires
                          > that
                          >> > will make the 1930's look like a kitchen fire.
                          >> >
                          >> > Rich Harriman wrote:
                          >> >
                          >> >> Bill, the Fed cute rates from 6% in October 1929 to 1.5% in March-
                          >> >> April 1931, during which time gold began flowing out of the US and
                          >> >> the $US came under threat, after foreign capital and gold had flowed
                          >> >> into the US in 1928-29 following the German banking system collapse
                          >> >> and European bond bear market in 1927.
                          >> >>
                          >> >> France's attack on sterling (because of Great Britain's decision to
                          >> >> support efforts to relieve the burden of Germany's reparations
                          >> >> payments, among other things) was one of a number of factors leading
                          >> >> to the devaluation of sterling and fears that the US would follow
                          >> >> suit (which we did 2 1/2 years later under FDR); this precipitated
                          >> >> the reserve bankers to sell T-bills and commercial paper and load up
                          >> >> on gold, and for the Fed to raise rates from 1.5% to 3.5%, leading to
                          >> >> the "real" crash of the stock market, as the DJIA fell from ~150-160
                          >> >> in mid-1931 to 41-50 in July 1932.
                          >> >>
                          >> >> Events of recent years, including the Mexican and Chinese
                          >> >> devaluations in 1994, the Asian Crisis and Russian default in 1997-
                          >> >> 98, and the US bubble economy and stock market are eerily
                          >> >> reminiscence of the global financial episodes of the 1920s that led
                          >> >> up to the 1929-33 debacle.
                          >> >>
                          >> >> I suspect that we are setting up for a similar kind of event as the
                          >> >> US economy slips into recession, the Fed cuts rates, the economy
                          >> >> fails to respond, asset prices continue to fall, defaults mount and
                          >> >> the $US declines from its very overvalued level.
                          >> >>
                          >> >> Who will precipitate a run on the $US this time around? Japan?
                          >> >> Germany?
                          >> >>
                          >> >
                          >> >
                          >> >
                          >> > The Gang8 is devoted to Creditary Economics
                          >> >
                          >>
                          >>
                          >> The Gang8 is devoted to Creditary Economics
                          >>
                          >>
                          >>
                          >
                          >
                          >
                          > The Gang8 is devoted to Creditary Economics
                          >
                        • schulte-baeuminghaus
                          Henry, Depends how you define deflation/inflation. We ve been over this ground before. If Greenspan were to raise interest rates significantly right now or in
                          Message 12 of 13 , Dec 17, 2000
                          View Source
                          • 0 Attachment
                            Henry,


                            Depends how you define deflation/inflation.
                            We've been over this ground before.
                            If Greenspan were to raise interest rates significantly right now or
                            in the near future,the prospect is that a wide variety of financial
                            paper would lose value quickly and dramatically. That includes the
                            financial paper called money.
                            The nature of our economic/social/political system is such that, with
                            perhaps some time-lag, you'll need a lot more financial paper,
                            including especially money, to pay/exchange for other things.
                            On the other hand, if Greenspan lowers the interest rate - which he is
                            probably more likely to do in the present environment - he will
                            probably give the economy a breathing space - probably short but one
                            in which some sense of stability might emerge for a while. The value
                            of financial paper, including money, won't slump so far or fast as
                            under the first scenario of a rise in interest rates, and you won't
                            need so much financial paper, including money, to buy/exchange for
                            other things.


                            James



                            ----------
                            >From: "Henry C.K. Liu" <hliu@...>
                            >To: gang8@egroups.com
                            >Subject: Re: [gang8] Exchange Rates and Economic Collapse
                            >Date: Sun, Dec 17, 2000, 1:26 am
                            >

                            > "In principle, any increase therein relative to the rate of Real World
                            > Economic Growth would be inflationary, other things being equal."
                            >
                            > The problem is in the four words I see in every post over at pkt: "other
                            > things
                            > being equal".
                            > Any change in interest rate changes all "other things". So it's like saying
                            > that earthquakes have calming effects, provided vibration is not measured,
                            > because earthquakes release latent platonic friction and directional
                            > pressure.
                            > At this moment, there is no doubt that high interest rates will lead to
                            > drastic
                            > deflation in the US. In fact, even if Greenspan lowers ff rate to zero, he
                            > most
                            > likely cannot stop the onslaught of deflation already underway.
                            >
                            > Henry
                            >
                            > Gunnar Tomasson wrote : other things being equal"
                            >
                            >> Henry:
                            >>
                            >> Re. the following:
                            >>
                            >> > I accidentally ignited a heated and inconclusive debate
                            >> > on pkt on the conceptual relationship between inflation and interest
                            > rates
                            >> > that degenerated into a debate on orthodox interpretations of dated
                            >> > economics literature, most of which written before structured finance was
                            >> a
                            >> > reality. The huge interest swap derivatives market of recent years alone
                            >> > has changed the classical relationship between interest rates and
                            >> inflation.
                            >>
                            >> A short-cut to the bottom line on the relationship between interest rates
                            >> and inflation is to consider the impact of higher/lower interest rates on
                            >> the rate of change in the World Financial System's Assets.
                            >>
                            >> In principle, any increase therein relative to the rate of Real World
                            >> Economic Growth would be inflationary, other things being equal.
                            >>
                            >> Gunnar
                            >>
                            >>
                            >> The Gang8 is devoted to Creditary Economics
                            >
                            >
                            >
                            > The Gang8 is devoted to Creditary Economics
                            >
                          • Wray, Randall
                            james and all i ve been busy giving/grading finals. i don t agree that the coming crisis had much to do w/the speculative bubble on wall street--would have
                            Message 13 of 13 , Dec 18, 2000
                            View Source
                            • 0 Attachment
                              james and all
                              i've been busy giving/grading finals.
                              i don't agree that the coming crisis had much to do w/the speculative bubble on
                              wall street--would have come anyway, altho i will agree the speculative excesses
                              might make the hard landing harder.

                              the root cause is the govt surplus.

                              what will the politicos do? the fed will lower rates in a series of steps; bush
                              will use the recession as justification for tax cuts, esp those targeted to the
                              rich. any benefits that might come will come to0 late.

                              hence, very hard landing is in store.

                              and, double hence, much work for us!

                              randy
                            Your message has been successfully submitted and would be delivered to recipients shortly.