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Pastimes : Ask Mohan about the Market -- Ignore unavailable to you. Want to Upgrade?

To: Elllk who wrote (9420)	11/25/1997 10:20:00 PM
From: Joan Osland Graffius	Read Replies (1) \| Respond to of 18056

Hi Larry, >>Is it possible that in exchange Greenspan and the Fed get some control over the how fast the Japanese sell US securities and treasuries so that a slow, controlled retreat of the market can be engineered (they hope?) over several months (more than 1000 points since it was that long ago that Greenspan first said the market was over valued). There are somethings I do not understand. If the Fed is going to loan the BOJ $'s (BTW I hope they pay a high interest rate), or buy back bonds in exchange for $'s, then in the case of the FED buying bonds this transaction must be accounted for somewhere. I would think at minimum during the refunding for the bonds, short or long term. Another thing that is bothering me is the BOJ needs to take the balance of payment $'s and spend it on domestic finance problems. I am assuming they are not going to be able to solve the total problem with tax or other domestic funds. Anyway then tell me who is going to fund our debt. Lets assume the BOJ continues to decrease its support of our debt how high will the bonds have to go before they become attractive to the investors that are looking for their best return. Just trying to figure this thing out. Theory is great but this thing has to be implemented. Joan

To: Elllk who wrote (9420)	11/25/1997 10:30:00 PM
From: Rational	Read Replies (3) \| Respond to of 18056

Larry: A CB Chief will ordinarily prefer a softlanding or a soft-takeoff. CB's are independent of Governments, although they are open to all suggestions. CB's decide what is best for the economy, given the suggestions, their own analysis and judgement. Thus, BOJ and Fed do not have to worrry about the discord among the political constituents in either country. Thus, the pact between two super economic powers is in the best interest of the global economy (as far as the CB's see) which is becoming increasingly integrated to the extent that the recent currency rate fluctuations are being construed to be abnoxious and undesirable. While the Fed and BOJ will have tried a soft-landing [or soft-takeoff] in which BOJ would gradually sell [or buy] US Treasuries, what is critical is the global deflation stemming from global competition. Under this deflationary setting, a gradual easing of the interest rate is natural and rational for a soft-takeoff. Then, having BOJ sell a large chunk of US Treasury (which will spurt the interest rate as a spike) is inconsistent (and disruptive in the short-run) with the rational and desrirable move. As soon as deflation is fully expected, the rate of interest would automatically fall and the US stock markets would immediately climb up, IF (either the CB's did not exist) or CB's moved rationally. IMO, the markets were not clear about how the CB's would move. Now, the markets are getting clearer that there will be no large-scale sale of US Treasuries, if at all. Thus, the reason for easing is deflation which the CB's did not expect, let alone control. If there should be easing, a large-scale Japanese sell off of US Treasuries would be inconsistent with the deflationary policy and so the CB's are trying their best to address the Japanese crisis while maintaining a rational economic policy under a global deflationary setting. If deflation turns to inflation at some point in time, the policy will then change, IMO. Sankar

To: Elllk who wrote (9420)	11/25/1997 10:47:00 PM
From: DFCampbell	Read Replies (1) \| Respond to of 18056

Guess you don't believe in free markets do you? The way I see it, there is either govt. interaction or there isn't. Middle ground "management" of any market by govt. officials does not constitute a free market at all----an easy way out does not insure the survival of the fittest.. [By the way, I have never really believed that a free market exists, which makes me smile at the pontifications of all those who speak in favor of no govt. meddling and free trade and so on.] I know these spoken observation are more just me fed up with so many people thinking there is some managed way out of this current state of affairs in the world markets. Face it, the world is a whole lot smaller than it used to be, and fewer people have control over it. And think, the real craziness may yet come. Or not. Just sit back and relax. Or try to. Or try to think how interesting the world would be if there were no silly "breaker circuits". Rantingly, DFCampbell