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Strategies & Market Trends : ahhaha's ahs -- Ignore unavailable to you. Want to Upgrade?

To: ahhaha who wrote (3115)	10/16/2001 11:11:44 PM
From: Mark Adams	Read Replies (1) \| Respond to of 24758

It isn't a long term bet on rates and inflation since it has no consequence to them. Perhaps this required a bit more precision in my choice of words. By changing the duration, the debt will be rolled over 2-5 years out. This assumes at that time the Govt either is not in a position to pay down the debt, or chooses not to. If interest rates rise between now and then, financing costs will be higher for the US Govt than if they had left the 20-30 maturity outstanding. This is what I mean by 'bet on lower interest rates'. I don't give a hoot what MER says. Most of what we read is mere propaganda, with actual motivations well hidden. I care about what the short and long term implications of policy choices given various future scenarios. If anything, MER is proposing what they think might be a wise move given their model of the future, but also with an eye on the potential transaction fees. Leaving things as they are should generate less transaction and less premium than stirring the pot. I'm not trying to be precise here, or even correct. Just trying to ask the right questions, to propose possible alternatives, and encourage dialogue.

To: ahhaha who wrote (3115)	10/17/2001 12:03:27 AM
From: Don Lloyd	Read Replies (1) \| Respond to of 24758

ahhaha - ...Interest rates rise, assuming non-interference by the FED, because the demand for money exceeds the ability of the economy to provide enough funds at the margin to prevent rates from rising. When rates rise the incremental cost to borrow rises and so at the margin projects that were marginal aren't started. If they had been allowed to start, say by a generous FED interfering to keep rates from rising, those projects would realize half way through that they couldn't stay on budget and be completed. Thus a rising rate forces everyone to be more responsible about borrowing. This has nothing to do about realized costs, but everything to do with preventing rising unrealized costs. ... It seems likely that the relatively small increases in interest rates that the non-marginal projects experience will be more than compensated for by the absence of the ultimately futile marginal projects in the competitive markets for labor and other production factors, thus reducing their cost contributions as they are not bid up and wasted. Regards, Don