Friday, July 27, 2012

KRUGMAN ON CHEAP MONEY...

KRUGMAN IS PUZZLING ABOUT WHY CHEAP MONEY HAS NOT CAUSED HIGHER RATES...

THE ANSWER IS THE DEPRESSION...

STOCKS ARE A LOSER...THEY ARE WAY OVER VALUED FOR A DEPRESSION ECONOMY...

THE UNDERLYING ECONOMY IS STILL IN A DEEP DEPRESSION...WITH NO EASY WAY OUT.

IF STOCKS SOLD FOR WHAT THEY WERE WORTH...WITHOUT FED INTERVENTION...IN AN OLD FASHION NON-BUBBLE ECONOMY...WHERE "RETURNS" WERE DEMANDED IN THE FORM OF YIELD AND DIVIDENDS...BONDS WOULD REFLECT THAT

BECAUSE:

MONEY HAS TO BE "WORTH SOMETHING" FOR THE ECONOMY TO FUNCTION PROPERLY...THERE IS NO SUCH THING AS "FREE MONEY"...FOR FREE YOU GET GARBAGE...

FREE MONEY IN A DEPRESSION IS LIKE FEEDING A DEAD HORSE...IT COSTS YOU NOTHING...BECAUSE THE HORSE CAN'T EAT...

BONDS COULD BE ALLOWED TO ADJUST...AND RATES WOULD GO HIGHER...IF STOCKS WHERE PROPERLY PRICED...

A 1% RETURN ON BONDS...IS BETTER THAN TAKING A 10% LOSS ON STOCKS...

STOCKS ARE RISKY...BONDS ARE NOT AS FAR AS RETURN OF CAPITAL GOES...THAT IS ALL YOU NEED TO EXPLAIN THE CURRENT PRICES OF PAPER ASSETS...

IN A DEPRESSION RETURN OF CAPITAL...NOT RETURN ON CAPITAL...IS THE BEST YOU CAN EXPECT.