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Strategies & Market Trends : The Epic American Credit and Bond Bubble Laboratory
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To: russwinter who wrote (23893)12/31/2004 8:43:33 AM
From: Wyätt Gwyön  Read Replies (1) of 110194
 
"The problem is that while the Fed has moved up rates, it hasn't really had much of an effect in tightening the economy. Credit is cheap and widely available. The Goldman Sachs Financial Conditions index stood at 95 in the latest monthly reading. It has been lower only three other months since the firm started keeping the index in 1984. A lower number means conditions are looser, stimulating spending and investment. Monetary policy works with a lag, of course, but markets have been blasé.

"It could be that rates are signaling a weak economy, but the main reason for these interest-rate abnormalities is largely technical. The grasshoppers here in the U.S. continue to party. They are supported by demand for fixed-income products from foreigners, mainly Asian central banks, as anyone who is mildly interested in global economics knows by now. That demand has significantly outstripped supply this year, even though the Treasury is selling more debt to fund the budget deficit. In rough terms, while the Treasury has increased the supply of debt by about $400 billion this year, foreign investors have snapped up about $800 billion in U.S. fixed-income products."
--from Jesse Eisinger article last week
online.wsj.com
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