> From: WCrimi <WCrimi@aol.com>
> Date: Fri, 3 Apr 1998 20:57:06 EST
> To: gadr@nyct.net
> Subject: Reynolds Please Read Latest Issue
> <http://www.chebucto.ns.ca/~an388/comment.html>Skeptical Investor
I did. I didn't follow his argument about the Fed monetizing Japanese held T-Bills and T-Bonds. The Japanese bought them to do something with excess dollars in the first place -- since they won't consume our products and their selling dollars would result in our being unable to buy their goods. If the Fed buys its debt instruments back from the Japanese, what do the Japanese then do with the dollars -- put them under the mattress?
If the Fed doesn't buy debt from the Market, won't short term rates
go up -- meaning that the Fed has in effect raised rates? How can
they raise rates in this climate?
I will concede that if the Fed is pouring funds into the system
to hold down short term rates, this would have an inflationary effect
on securities prices. But, from that he leaps to the conclusion that economic catastrophe is just around the corner. I have been hearing this since my childhood in the 1950's. Please forgive me for becoming increasingly skeptical of doomsday scenarios.
At this point, this seems like a highly speculative conclusion based upon the oldest of all technical indicators, i.e., what goes up must come down, and what goes up sharply must likewise come down sharply.
However, over the past 70 years annual U.S. nominal GDP has climbed from $85 billion to almost $8 trillion, an annual rate of 6.6%. Take out 3% average annual inflation, and 3.6% average real annual growth remains. Yet, there have been only a handful of calendar years when real GDP did not rise, and even in those it was basically flat, calendar year over calendar year. |
