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Pastimes : Ask Mohan about the Market
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To: tekgk who wrote (8589)11/19/1997 7:51:00 PM
From: Tommaso  Read Replies (1) of 18056
 
That's what I can't seem to grasp, among other things. If the sale of U.S.bonds forces the interest rate up, that should make dollars more valuable. Shouldn't it? because other people who want to invest can get more money on their dollars. Selling the bonds creates a demand for the liquid currency?

If there were some question of default or irresponsible inflation by the United States, that would be another question.

But at this point we seem to have a very disciplined, uninflationary, honest economy where people are willing to work hard at all sorts of jobs without looking for as many handouts as in the past. or am I too optimistic?

The Japanese must have noticed that their U>S> bonds are worth a good deal more than they were a couple of months ago, too.

I think that what they need is to inflate their currency some to get their bank balance sheets in order and accept a lower standard of living (still very prosperous).

Or if they insist on cashing in their bonds I think the Fed should create a lot of money. We have a threat of terrible deflation--there's not much likelihood of inflation with every sort of good and service (even oil) in very ample supply.

Thoughts of a rank amateur who never went beyonf Economics 101-102.
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