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Strategies & Market Trends : Mish's Global Economic Trend Analysis -- Ignore unavailable to you. Want to Upgrade?

To: zonder who wrote (31719)	6/9/2005 12:33:30 AM
From: mishedlo	Respond to of 116555

China Does Not Determine U.S. Interest Rates by Frank Shostak Shostak is an extremely well respected Austrian economist This should, but probably will not end the debate that China and Japan are lowering US treasury rates by enormous amounts. Mish mises.org …. the driving force of interest rate determination is individual's time preferences. …. What effect does China have on US interest rates? As far as the supply of money, i.e. the supply of US dollars, is concerned, China has no effect whatsoever. The sources for the supply of dollars are the Fed and fractional reserve banking. Also, China's exchange rate policy has very little effect if at all on changes in the demand for US dollars as such. Thus, when China raises exports of goods to the US the first effect of this is to raise China's demand for the US dollar. However, once the Chinese central bank invests all these dollars in US Treasuries this in fact lowers Chinese demand for US money. Hence the overall effect is no change in demand. This means that for a given supply of money the amount of excess US money remains unchanged overall—implying no effect on US interest rates. Now, if China were to decide to sell off its holdings of US t-bonds, obviously it would lead to an initial rise in yields. However, the Chinese are unlikely to sit on the dollars—they most likely will employ the dollars obtained from t-bond sales to purchase some other US assets, which in turn will push their prices up and lower their yields. In other words China's action will not have any effect on excess US money overall. Hence over time China's selling off of t-bonds will have no effect on interest rates. …… ……the key factor that determines the rate of growth of excess money is the monetary policy of the Fed and not China's exchange rate policy. Conclusion We can thus conclude that the key-determining factor in the setting of US interest rates is the amount of US excess money supply. Over time this excess is predominantly driven by the supply of money, which is set in motion by the Fed's monetary policies. In this respect the Chinese factor is completely irrelevant as far as US interest rate determination is concerned. So if the economy were to fall into a recession on account of a bursting of the housing bubble we should blame the Fed for that and not falsely point the finger at China.

To: zonder who wrote (31719)	6/9/2005 2:32:23 AM
From: mishedlo	Respond to of 116555

SS reform dead? WASHINGTON - President Bush has all but conceded his plan for private accounts for Social Security is dead, admitting privatization won't save the federal retirement system. "You can solve the solvency issue without personal accounts," Bush said in an interview with the Radio-Television News Directors Association. nydailynews.com strange there has been no big coverage of this by someone reputable I did find this thereisnocrisis.com