The Epic American Credit and Bond Bubble Laboratory Message Board

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Strategies & Market Trends : The Epic American Credit and Bond Bubble Laboratory

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To: Real Man who wrote (6377)	1/28/2004 7:16:10 PM
From: mishedlo	Read Replies (2) of 110194

Here is a date to forget at your peril. Next week marks the tenth anniversary of the bond market crash. In case you can't remember, February 1994 was when the United States finally raised interest rates after a long hiatus. It was a year that saw the dollar crumple, stocks droop and commodity prices soar. It was such an awful time for investment banks that Goldman Sachs partners even had to inject money into the bank after it suffered huge bond losses. This year may turnout different. But the similarities are certainly startling and scary. Then, as now, Alan Greenspan had kept rates unusually low to protect the U.S. economy and the financial system from a deflationary crunch. Then, as now, there was no sign of inflation, although the economy was growing at a 7 percent clip. The United States also had a record current account deficit, which it was relying on foreign money -- especially Asian -- to finance. And then as now U.S. banks were making hay on what they thought was a riskless carry trade, buying long-dated U.S. Treasuries using funds financed with cheap deposits. money.cnn.com

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