tag:blogger.com,1999:blog-6616959642391988608.post7517041746674505165..comments2024-03-28T00:18:25.641-07:00Comments on Calafia Beach Pundit: No shortage of money (4)Scott Grannishttp://www.blogger.com/profile/14028519647946868684noreply@blogger.comBlogger12125tag:blogger.com,1999:blog-6616959642391988608.post-44018206317004536472008-12-08T05:04:00.000-08:002008-12-08T05:04:00.000-08:00I'm aware of at least one real estate developer/bu...I'm aware of at least one real estate developer/builder (land and houses) that has bank Line of Credits in place for all of 2009. However there are factors within the LOCs that will effectively prohibit any new projects until current inventory reaches a healthier level. So there has to be a take-up of existing houses before anything new can get off the drawing board. In fact there isn't much Gene Prescotthttps://www.blogger.com/profile/01749854994321888028noreply@blogger.comtag:blogger.com,1999:blog-6616959642391988608.post-11199519884653560142008-12-07T09:46:00.000-08:002008-12-07T09:46:00.000-08:00CDLIC: I think Tom may be right, that some lenders...CDLIC: I think Tom may be right, that some lenders are trying to reduce their exposure to the real estate sector in general. Plus, there is a widespread fear that commercial real estate is going down; witness the destruction in the CMBS sector in the past month. There is a big rotation going on in the economy, away from real estate and towards other areas that are growing, such as exports and Scott Grannishttps://www.blogger.com/profile/14028519647946868684noreply@blogger.comtag:blogger.com,1999:blog-6616959642391988608.post-33465969034693095582008-12-07T06:23:00.000-08:002008-12-07T06:23:00.000-08:00CDLC,Hope you don't mind me throwing up a thought,...CDLC,<BR/><BR/>Hope you don't mind me throwing up a thought, and I hope, too, that Scott doesn't mind me cluttering up his blog with another so-called Austrian idea.<BR/><BR/>Consider, however, how the Austrian Business Cycle Theory explains both of these observations. The Theory says that the credit expansion and artificially low interest rates cause too many projects to be started -- more than Tom Burgerhttps://www.blogger.com/profile/01484696976692382802noreply@blogger.comtag:blogger.com,1999:blog-6616959642391988608.post-3765672395303696412008-12-06T20:39:00.000-08:002008-12-06T20:39:00.000-08:00Scott,A friend of mine emailed me the following af...Scott,<BR/><BR/>A friend of mine emailed me the following after reading my email to him with of your "No shortage of money (4)." You thoughts?<BR/><BR/><BR/>"I have major developer friends who have run major real estate development firms on both east/west coasts. All attempts to secure loans for the past 6-months have been in vain. These are companies with 20+ years history of success after CDLIChttps://www.blogger.com/profile/01216074401236580903noreply@blogger.comtag:blogger.com,1999:blog-6616959642391988608.post-5737534879497847612008-12-06T12:13:00.000-08:002008-12-06T12:13:00.000-08:00Mark: velocity has declined of late as you note. I...Mark: velocity has declined of late as you note. I measure velocity by dividing nominal GDP by M2. The inverse of velocity is money demand, and sometimes it's easier to think in those terms.<BR/><BR/>Velocity has fallen and money demand has risen in the current crisis. It's easy to see that people want more money because they fear all sorts of things these days. So money demand is up because of Scott Grannishttps://www.blogger.com/profile/14028519647946868684noreply@blogger.comtag:blogger.com,1999:blog-6616959642391988608.post-62052627350392970762008-12-06T11:57:00.000-08:002008-12-06T11:57:00.000-08:00Since the money supply is growing in a reasonable ...Since the money supply is growing in a reasonable trend yet the economy is shrinking, doesn't that indicate the slowdown is coming from a reduction in the velocity of money? If that's the case, what will it take to reverse the shrinking velocity?<BR/><BR/>It seems that the velocity has been historically high over the past decade or two due to financial innovation (ie. securitization, shadow Mark Gerberhttps://www.blogger.com/profile/07980096984624964261noreply@blogger.comtag:blogger.com,1999:blog-6616959642391988608.post-71357460651560463882008-12-06T09:59:00.000-08:002008-12-06T09:59:00.000-08:00Tom: I think it will be a long time before banks e...Tom: I think it will be a long time before banks engage in reckless lending practices, unless, of course, the government mandates it.<BR/><BR/>I would take issue (again) with your implicit assertion that banks created too much money because of fractional reserve banking. With the Fed's targeting of the interest rate on reserves, the Fed has control over how much money the banking system can Scott Grannishttps://www.blogger.com/profile/14028519647946868684noreply@blogger.comtag:blogger.com,1999:blog-6616959642391988608.post-26323277430509876042008-12-06T09:54:00.000-08:002008-12-06T09:54:00.000-08:00Joe: Thanks! As for your question, I'm not sure I ...Joe: Thanks! As for your question, I'm not sure I can answer it. I do remember that 2003 marked the tail end of the great corporate deleveraging which began in 2001, and it was also a time when the economy was booming. The Fed was targeting a 1% funds rate at the time, and had announced its intention to keep rates low for an extended period. Perhaps the prospect of very low (way too low as we nowScott Grannishttps://www.blogger.com/profile/14028519647946868684noreply@blogger.comtag:blogger.com,1999:blog-6616959642391988608.post-86387326210063727802008-12-06T08:19:00.000-08:002008-12-06T08:19:00.000-08:00Scott,I sure agree that the gold standard is proba...Scott,<BR/><BR/>I sure agree that the gold standard is probably the only device that has ever reigned in government manipulation of the money supply. To avoid the boom/bust cycle, though, we would also have to change our banking practices.<BR/><BR/>The fractional reserve banking system is a key source of economic instability, according to the Austrian School theories. This is especially true whenTom Burgerhttps://www.blogger.com/profile/01484696976692382802noreply@blogger.comtag:blogger.com,1999:blog-6616959642391988608.post-66100882357551938592008-12-06T06:55:00.000-08:002008-12-06T06:55:00.000-08:00Scott: I enjoy and appreciate your posts; thanks f...Scott: I enjoy and appreciate your posts; thanks for always keeping things in perspective when the media is filled with unrelenting hysteria! <BR/><BR/>Question -- the chart shows a plunge at the end of 2003, about two years into the previous recovery period. Is there a lag factor?joemckendrickhttps://www.blogger.com/profile/02280059500900988435noreply@blogger.comtag:blogger.com,1999:blog-6616959642391988608.post-48180561762241899222008-12-05T17:07:00.000-08:002008-12-05T17:07:00.000-08:00I've been pretty critical of Fed policy for a long...I've been pretty critical of Fed policy for a long time. I think Greenspan made some huge mistakes beginning in the late 1990s when he tightened too much, then in 2002-2004 when he eased too much. Bernanke has made huge mistakes as well. Bad monetary policy has really messed things up, and not many people understand this, which is another problem. I don't know of anyone who has come up with a Scott Grannishttps://www.blogger.com/profile/14028519647946868684noreply@blogger.comtag:blogger.com,1999:blog-6616959642391988608.post-40173776638187222442008-12-05T14:12:00.000-08:002008-12-05T14:12:00.000-08:00Scott, Do you know of any good books on free banki...Scott, <BR/><BR/>Do you know of any good books on free banking and/or monatary policy or Federal Reserve reform?<BR/><BR/>We've heard a lot about how the Federal Reserve's low interest rate policy during the beginning of the decade helped fuel the housing bubble (although Fannie and Freddie probably contributed more). <BR/><BR/>Here's a thought. What if the federal government were unable to Spiralhttps://www.blogger.com/profile/06283696339544813585noreply@blogger.com