1929, 1973 1988?

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Posted by Winsow R. (71.138.60.22) on 17:09:15 11/25/07

Here, there is a direct contrast with 1973. Then, savers had no direct experience of inflationary conditions.

The result was a massive shift of wealth from savers to borrowers. The smart move, it turned out, was to buy a house on the biggest mortgage possible - or, for governments, to issue the maximum amount of self-liquidating debt.

Today, those in late middle age will make no such mistake. In 1973, as I can attest, spasms of panic could be induced by the simple act of visiting the supermarket and checking the prices against a few weeks before.

That is not an experience one forgets. Investors of that age, whether amateur or professional, are now in the driving seat. If inflation takes hold - indeed, if it simply becomes more volatile - the result will be an inflationary risk premium. And in a savers' market, it will be the turn of borrowers to suffer.

Of course, we are not there yet and may never be. All that is happening now is a worsening 1989 scenario, with Goldman Sachs - for instance - arguing last week that US house prices have 13 to 14 per cent more to fall, or 35 to 40 per cent in the case of California.

I am not, after all, seeking to propound any vulgar fallacies about history repeating itself. The point of such exercises is rather to expand our conception of the possible.

In that spirit, a seasoned stockbroker of my acquaintance dismisses my 1973 comparison. The true parallel, he says, is 1929.

But that, surely, is going too far.

http://news.yahoo.com/s/ft/20071125/bs_ft/fto112520071257275168;_ylt=AiT74MHbg7ylT_ea_eBLejb2ULEF

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Subject:	Re: 1929, 1973 1988?
Comments:	: Here, there is a direct contrast with 1973. Then, savers had no direct experience of inflationary conditions. : : The result was a massive shift of wealth from savers to borrowers. The smart move, it turned out, was to buy a house on the biggest mortgage possible - or, for governments, to issue the maximum amount of self-liquidating debt. : : Today, those in late middle age will make no such mistake. In 1973, as I can attest, spasms of panic could be induced by the simple act of visiting the supermarket and checking the prices against a few weeks before. : : That is not an experience one forgets. Investors of that age, whether amateur or professional, are now in the driving seat. If inflation takes hold - indeed, if it simply becomes more volatile - the result will be an inflationary risk premium. And in a savers' market, it will be the turn of borrowers to suffer. : : Of course, we are not there yet and may never be. All that is happening now is a worsening 1989 scenario, with Goldman Sachs - for instance - arguing last week that US house prices have 13 to 14 per cent more to fall, or 35 to 40 per cent in the case of California. : : I am not, after all, seeking to propound any vulgar fallacies about history repeating itself. The point of such exercises is rather to expand our conception of the possible. : : In that spirit, a seasoned stockbroker of my acquaintance dismisses my 1973 comparison. The true parallel, he says, is 1929. : : But that, surely, is going too far. : : http://news.yahoo.com/s/ft/20071125/bs_ft/fto112520071257275168;_ylt=AiT74MHbg7ylT_ea_eBLejb2ULEF
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