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Gold/Mining/Energy : Gold Price Monitor -- Ignore unavailable to you. Want to Upgrade?

To: Amelia Carhartt who wrote (13127)	6/14/1998 3:30:00 PM
From: ahhaha	Read Replies (3) \| Respond to of 116798

Central Banks can control short term interest rates like fed funds or T-Bills. They are helpless when it comes to the longer T-Bonds. Long ago when the size of the long T-Bond market was smaller, they could buy and sell those bonds to manipulate the market, but it wasn't necessary and they rarely did it. Now it's impossible. Daily transaction levels of currencies exceed the capabilities of all Central Banks by a factor of 100. That's why Greenspan testifies that there is a limit to what the FED can do. When the FED abuses their power, the free market rises up to chastise them because there is no confidence in the action the FED may visit upon markets. We give the FED certain power and we can take it away if they pursue something-for-nothing policy. This lesson was writ large in 1980. The Japanese have wanted and the US Treasury has wanted a gently declining yen. This has the effect of propping Japanese competitiveness and subtracting our rising propensity to inflate. Both banks and societies have intentionally and inadvertently pursued policies to achieve this end. Now the yen is in free fall. Neither wants that. You are suggesting a trade-for-profit strategy. Central Banks can't do that. It would be seen as irresponsible even if it worked, but the very act of trying it would be chastised by the open market because it would go against what the market may have in mind. When the BOJ recently bought $21 billion in yen, they were doing such a strategy. It wasn't motivated by profit, it was a manipulation for a fiat purpose, a purpose that comes from, "we know what things should be doing, and we will make them to our will". Where is the $21 billion? Squandered. Japanese banks and the BOJ hold a lot of long T-paper. The paper was forced upon them through trade so they needed a way to factor it into a dollar entity without using it to purchase expensive dollar denominated goods usually created in the US. It isn't the fault of the Japanese that Americans institute laws creating competitive inefficiency. If American labor wants to price itself out of foreign markets, Japan can't do a thing. If Americans want to buy Japanese which has the effect of engaging scab labor, they should be able to do that. Who wants to buy expensive shabby goods just to support a monopoly? The T-paper's yield is not all that important to these various banks. They don't need more dollars. They have so much T-paper now that they can't easily get out of it. They are the market. Trying what you suggest would cause them to lose a big portion of the principal and would have the result of a collapsing dollar and exploding domestic inflation in the US. The FED would have to raise short rates to induce a recession and people would slow their purchases of Japanese goods. That is the last thing the BOJ wants. You are thinking in terms that all currencies, bonds, investment entities are fungible. Between the cup and lip...You can't buy goods here with yen. Mom and pop won't take them. They see this funny looking guy with glasses on the bill and they are reminded of WW II. They throw you out of their store. You have to convert the currency into dollars. Same in Japan although in many countries the locals don't have a problem about accepting a bill with a funny looking old man with a wig on the front. You have to separate the domestic action effects of people and banks from the implied international consequences. This is the error I most often see in the discussions we have here. In light of this what Japan does internally has no effect on the US necessarily, but the world community is now highly interwoven so mass actions have consequences especially since past Japanese/American policies have created this block of T-paper. The block does create problems but can only be gradually dissolved by a competitive America. You won't get that with striking unions. The block also has had the virtuous effect of forcing Americans to save. When we buy Japanese autos, we buy T-Bonds indirectly and the indirection prevents us from converting savings to consumption. If we are competitive, we get the possibility of the reverse: we buy Japanese long T-paper with the benefit of converting consumption and indirect savings to investment. So the point at which Japan will find factoring their receipt of dollars into American goods must await a resumption on the attack of American labor hubris. The result of a successful attack isn't "watch out below", rather it's "watch out rest of the world, America will compete you back into monarchy".