Before every bust, there is a transition period. Borrowers are still borrowing. They do not perceive the threat: a falling economy, rising bankruptcies, and unemployment, Like frantic buyers in an auction for new homes in the final days of a housing bubble, so are borrowers at the end of a boom. Interest rates shoot upward for one last move.
Then reality sinks in. Debtors find themselves facing an economic slowdown. High rates are strangling economic growth. Fear takes over.
We can see this in the rate decline from 1929 to 1936. Prime bankers’ acceptances (90 days) reached 5% in 1929. A year later, the rate was half that. In 1931, it was 1.57%. In 1932, it was 0.62%. It kept falling. It hit 0.15% in 1936.
What had happened? Price deflation and the fear of stock market losses combined to reduce the demand for loans. Lenders wanted safety, so they were willing to lend short-term. They saw this market as less risky than anything else out there.
Similarly in 1987 stock markets crashed from their highs in the climate of extremely high interest rates, the fed reacted swiftly the the recovery was not so protracted as in the 1930s, but interest rates only came down whenm the fed feared a panic.
I notice you address some of the issues I raised and didnt respond to others. For instance my Japan example and shrinking money supply.
Lets not get into who knows what and whos stupid and whos not. I am happy for you to accept or discard what you want lets play the man not the ball.
I find many of your points HC contradictory, for instance you believe Sinclair economic Armageddon, but you take issue with me calling a DOW crash. If Sinclairs view of the world comes to fruition where do you think the rest of the markets going? Do you really believe in an ongoing DOW bull and a $3000 gold bull?
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