Best of the Week
Most Popular
1. US Housing Market House Prices Bull Market Trend Current State - Nadeem_Walayat
2.Gold and Silver End of Week Technical, CoT and Fundamental Status - Gary_Tanashian
3.Stock Market Dow Trend Forecast - April Update - Nadeem_Walayat
4.When Will the Stock Market’s Rally Stop? - Troy_Bombardia
5.Russia and China Intend to Drain the West of Its Gold - MoneyMetals
6.BAIDU (BIDU) - Top 10 Artificial Intelligence Stocks Investing To Profit from AI Mega-trend - Nadeem_Walayat
7.Stop Feeding the Chinese Empire - ‘Belt and Road’ Trojan Horse - Richard_Mills
8.Stock Market US China Trade War Panic! Trend Forecast May 2019 Update - Nadeem_Walayat
9.US China Trade Impasse Threatens US Lithium, Rare Earth Imports - Richard_Mills
10.How to Invest in AI Stocks to Profit from the Machine Intelligence Mega-trend - Nadeem_Walayat
Last 7 days
US Dollar Gold Trend Analysis - 15th June 19
Gold Stocks “Launch” is in Line With Fundamentals - 15th June 19
The Rise of Silver and Major Economic Decline - 15th June 19
Fire Insurance Claims: What Are the Things a Fire Claim Adjuster Does? - 15th June 19
How To Find A Trustworthy Casino? - 15th June 19
Boris Johnson Vs Michael Gove Tory Leadership Grudge Match - Video - 14th June 19
Gold and Silver, Precious Metals: T-Minus 3 Seconds To Liftoff! - 14th June 19
Silver Investing Trend Analysis - Video - 14th June 19
The American Dream Is Alive and Well - in China - 14th June 19
Keeping the Online Gaming Industry in Line - 14th June 19
How Acquisitions Affect Global Stocks - 14th June 19
Please Don’t Buy the Dip in Nvidia or Other Chip Stocks - 14th June 19
A Big Thing in Investor Education is Explainer Videos - 14th June 19
IRAN - The Next American War - 13th June 19
Boris Johnson Vs Michael Gove Tory Leadership Grudge Match Contest - 13th June 19
Top Best VPN Services You Can Choose For Your iPhone - 13th June 19
Tory Leadership Contest Betting Markets Forecast - Betfair - 13th June 19
US Stock Market Setting Up A Pennant Formation - 13th June 19
Which Stocks Will Lead The Cannabis Rebound? - 13th June 19
The Privatization of US Indo-Pacific Vision - Project 2049, Armitage, Budget Ploys and Taiwan Nexus - 12th June 19
Gold Price Breaks to the Upside - 12th June 19
Top Publicly Traded Casino Company Stocks for 2019 - 12th June 19
Silver Investing Trend Analysis - 12th June 19
Why Blue-Chip Dividend Stocks Aren’t as Safe as You Think - 12th June 19
Technical Analysis Shows Aug/Sept Stock Market Top Pattern Should Form - 12th June 19
FTSE 100: A Top European Index - 12th June 19
Gold Surprise! - 11th June 19
How Forex Indicators are Getting Even More Attention in the Market? - 11th June 19
Stock Market Storm Clouds on the Horizon - 11th June 19
Is Your Financial Security Based On A Double Aberration? - 11th June 19
What If Stocks Are Wrong About Interest Rate Cuts? - 11th June 19
US House Prices Yield Curve, Debt, QE4EVER! - 11th June 19
Natural Gas Moves Into Basing Zone - 11th June 19
U.S. Dollar Stall is Good for Commodities - 11th June 19
Fed Running Out of Time and Conventional Weapons - 11th June 19
Trade Wars Propelling Stock Markets to New Highs - 11th June 19
Best Travel Bags for Summer Holidays 2019, Back Sling packs, water proof, money belt, tactical - 11th June 19
Betting on Next British Prime Minister Tory Leadership Betfair Markets Forecast - 10th June 19
How Can Stock Market Go Up When We’re Headed Towards a Recession? - 10th June 19
If You Invest in Dividend Stocks, Do This to Double Your Returns - 10th June 19
Reasons for the Success of the Dating Market - 10th June 19
Gold Price Trend Analysis - Video - 10th June 19
US Stock Markets Rally Hard – Could Another Big Upside Leg Begin? - 10th June 19
Stock Market Huge Cosmic Cluster Ahead: Buckle Up! - 10th June 19
Stock Market Higher To Go? - 10th June 19
The Gold Price Golden Neckline… - 10th June 19
Gold Price Seasonal Trend Analysis - 9th June 19
The Fed Stops Pretending - 9th June 19
Fed Rate Cuts Soon; Bitcoin Enthusiasts Join Wall Street in Bashing Gold - 9th June 19
1990s vs. 2010s - Which Expansion Will be Better for Gold? - 9th June 19
Gold Price Trend Analysis, MACD, Trend Channels, Support / Resistance - 8th June 19
Gold Surges Near Breakout - 8th June 19
Could Gold Rally Above $3750 Before December 2019? - 8th June 19
5 Big Lies About Precious Metals Investing Exposed - 8th June 19
ADL Predictive Modeling Suggests A Big Move In Silver - 7th June 19
US China Trade War Will Start a Recession, or Worse… - 7th June 19
Land Rover Discovery Sport Brake Pads Expected Life, Worn Pads Dash Warning - 7th June 19
The Post Room Selfies Fun at Meadowhall Sheffield, From Game of Thrones to Desert Island... - 7th June 19
SAMSUNG - South Korean Electronics Giant - Investing in AI Stocks - Video - 7th June 19
Gold Price Rally or New Bull Market? - 7th June 19
Digging into the Rising Gold: Trade Tensions, Recessionary Worries and Dovish Fed - 7th June 19
The Risky Stocks Big Lie That Keeps Many Investors Poor - 7th June 19
Gold and HUI Short-term Strength Is a Strong Call to Action - 7th June 19
Fear Drives Stock Market Expectations - 7th June 19 - Chris_Vermeulen
Next British Prime Minister Tory Leadership Betting Markets - 6th June 19

Market Oracle FREE Newsletter

Gold Price Trend Forecast Summer 2019

Money Supply Bubble, Credit Squeeze and A Lender Who Will ....

Interest-Rates / Money Supply Mar 16, 2007 - 03:54 PM GMT

By: Adrian_Ash

Interest-Rates

"...The bold step in finance - the market-leading decision - now comes by retreating from credit and refusing all risk..."

INNOVATIVE new debt products so ften sound scary.

Credit default swaps, negative amortization mortgages, synthetic collateralized debt obligations...

Doesn't Wall Street ever get its marketing guys to work on these things? You know, just to make them more friendly.

Because the truth is, innovation in finance isn't scary at all. Entrepreneurs and investors should embrace it if they want to get rich. Money loves innovation, and their offspring's called credit.


In fact, what's really scary in finance is failing to innovate. Refuse to offer easy new products on new, easier, terms...and your business will wither and die.

  • If your stock broker won't give you a margin account, then in the end he'll go bust - losing business to brokers who will.

  • If a Wall Street bank won't float a new issue of high-risk junk bonds, then the bank will lose out - and the commission fees will just go to Europe.

  • And if your mortgage lender won't give you 125% of a property's value - leaving you short of money for buying furniture once you've moved in - well, then you'll just go and find yourself a lender who will.

The same applies to mutual funds, credit card companies, department stores, auto retailers...you name it. If they're dealing with money, then their success is driven by credit.

And being driven by credit always means you need to drive faster. Just so long as the cycle points upwards.

Call it a race to the bottom in terms of security. As the supply of credit increases, financial firms need to sit right on the cusp, out on the leading edge. Either that, or they'll lose out to competitors who will.

You need to "push the envelope" and think "outside the box" of underwriting standards, sensible lending and proof of income. Just look at the opportunities that await!

"As many as 22 million households - 20% of US households - are unbanked," noted a 2005 report from the Center for Financial Services Innovation in Chicago. Experian put the total number of "unbanked" Americans at 55 million, nearly one-fifth of the population.

"At least 53% of Mexican immigrants are unbanked," the CFSI report went on. "The combined unbanked and subprime credit population may be 30-40 million households."

Fast forward two years to early 2007, and credit has now gone where credit never dared tread before. Innovation has made sure of that.

"Creative new subprime loans - 'piggyback', 'interest-only', and 'no-doc' loans, among others - accounted for 47% of total loans issued last year," reported the Wall Street Journal recently.

"At the start of the decade, they were less than 2% of total mortgage loans."

But that's the nature of innovation. It either accelerates...or grinds to a halt. Scream if you wanna go faster!

"As long as lenders made loans available on virtually non-existent terms," writes Paul McCulley, managing director at Pimco, "the price didn't really matter all that much to borrowers. The availability of credit trumped the price of credit. Such is always the case in manias."

Hence the Fed's failure to touch the US credit bubble with its 17 hikes in interest rates. For as long as credit remained innovative, the inflationary trend would stay on track.

And now?

"The ongoing meltdown in the subprime mortgage market," says McCulley, will "unambiguously render any given stance of Fed policy more restrictive...Just as mortgage demand seemed inelastic to rising short rates when availability was riding relaxed terms, so too will demand seem inelastic to falling short rates when availability faces the headwind of restrictive terms."

In short, the Fed couldn't stop lenders from lending simply by raising its rates. Nor could the Bank of England, ECB or anyone else.

The Bank of England began raising its rates at the end of 2003. So did the Australian and New Zealand central banks, too. The US Fed started to hike Dollar rates in 2004, and a year later, the European Central Bank tagged along too.

Japan and Switzerland finally began hiking rates - albeit from near-zero - in 2006. But the effect on world money supply has been negligible up until now. Indeed, the "reflation" unleashed by record-low interest rates starting in 2003 just couldn't be tamed, not by a few measly basis points at least.

A quarter-point here and a quarter-point there was nothing against the forces of financial innovation.

Seventeen hikes in US rates? So what! US broad money, according to John Williams at ShadowStats.com, is growing by 11% annually. Eurozone money supply has been growing at 9.8% year on year. Britain's enjoying a 14% year-on-year bubble in money, even though short Sterling rates have risen by one half.

The global money supply has come to have little to do with interest rates, or so it would seem. Some three-quarters of all liquidity comes in the form of derivatives and securitized debt, as the analysts at Independent Strategy have observed. And if raising rates did nothing to slow it, the bubble in money might just start to deflate even if short-term rates now get clipped back towards zero.

The top of the credit cycle may be in - not because real Dollar rates have finally turned positive (which they haven't, by the way...), but because the lenders themselves are shuffling back from the edge.

Leave the market-leader's position to somebody else. The innovative step in finance today is to retrench...ask for secure credit ratings...demand proof of income...switch from digital and paper promises to hard, physical assets.

Once everyone's crept back to tight lending standards and a hatred of credit, the time will have come to step forwards again - and clean up in finance by lending on easy terms yet again.

But that time's not now. The retrenchment has only begun. Be brave - and step back.

By Adrian Ash

Adrian Ash is head of research at BullionVault.com , the fastest growing gold bullion service online. Formerly head of editorial at Fleet Street Publications Ltd – the UK's leading publishers of investment advice for private investors – he is also City correspondent for The Daily Reckoning in London, and a regular contributor to MoneyWeek magazine.


© 2005-2019 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in

6 Critical Money Making Rules