'Closed Economy'? The World Is a Closed Economy! (Understanding Interest Rate Changes)

Wall Street Journal ^ | 12 August 2003 | By DAVID GOLDMAN

[shrinkermd]

Rarely in the course of market events have so many been so wrong about so much. Two months ago, the pundits warned us that Japanese-style deflation was upon us in the form of collapsing bond yields. When the 10-year Treasury yield jumped to an intraday peak of 4.6% on Aug. 1 from close to 3%, we heard that soaring interest rates endangered the financial markets. Now the 10-year yield has settled down at the benign level of around 4.25%.

[shrinkermd]

Is this an explanation or an excuse? Seems more like the former than the latter IMHO.

[longtermmemmory]

"closed ecconomy" sounds like the zero sum game of socialists.

[elbucko]

Is this an explanation or an excuse?

I think a little of both. He does mention the IMF in the proper context as being wrong all the time. With is founders all socialists it's no wonder. The IMF is essentially the international enforcement "Goon" for Goldman and Sachs. AS for a "closed system" globally, there is, IMHO some truth to that. The US has always been a world trader, if not a free trader and some portions of our economy are greatly influenced by other countries. Where do you think all this cheap mortgage money came from.

[imawit]

Definitely an explination.

If you're in a foreign country, where would you put your $10 billion, your neighborhood banks checking account ? I think not. And by going with US Bonds you have the added advantage of not only higher return and a SAFER depository but you also help your own exchange rate and stay competitive in your exports.

[liberallarry]

ping

[imawit]

Definitely an explination.

If you're in a foreign country, where would you put your $10 billion, your neighborhood banks checking account ? I think not. And by going with US Bonds you have the added advantage of not only higher return and a SAFER depository but you also help your own exchange rate and stay competitive in your exports.

[AntiGuv]

The April-to-June plunge in U.S. bond yields provoked fear of U.S. deflation, to which the Federal Reserve gave undeserved credence.

The Fed gave further credence just this afternoon to: "the risk of inflation becoming undesirably low is likely to be the predominant concern for the foreseeable future." This article is an explanation of nothing but rhetorical sleight-of-hand. The Federal Reserve is rightly concerned about the risk of deflation which at present is great as it gets short of the actual event. To the extent that the Bank of Japan responded accordingly, it is simply a reflection of the broader market concern in this regard.

The reason bond yields rose following the June remarks is because Alan Greenspan stated his belief that 'conventional' monetary policy will prevent deflation, not because he dismissed the threat altogether.

[Free Vulcan]

The Fed only sets short term rates, not long term ones. Those are still set by the market. Any massive dumping of bonds by a foreign bank will create a spike in rates. Supply and demand.