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To: SGJ who wrote (241111)	5/16/2003 1:22:34 PM
From: Perspective	Respond to of 436258

Which - they will be successful, or they will buy the bonds? And who's they? The Fed? Read further down in my message - they can't do that in perpetuity without absolutely crushing the currency, which causes inflation, which means even more natural upward pressure on interest rates, which means even more forced Fed purchases of bonds, and more pressure on the currency - vicious positive feedback. Once the Fed goes down the path of buying long-term debt, or jamming short-term rates so far negative that they are directly financing negative rates on bonds, it engages a cycle of positive feedback that can't be broken without substantial economic damage. Once the system is charged with too much free money at negative real rates, you can't let rates rise without a collapse in economic activity. And you can't continue to jam rates negative without a collapse in the currency and inflationary forces. It's a catch-22. Can somebody tell me how you get out of that position without a depression or hyperinflation? BC