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To: Will Lyons who wrote (15755)	10/28/1998 3:09:00 AM
From: Patrick Slevin	Respond to of 17305

<When the rate goes down the value of existing paper goes up because the relative yield goes up.> Yes but that's not what I was driving at. Low borrowing costs will not necessarily mean money will be easy to borrow. One concern about Japan is that although borrowing costs are low no one can get it. So, for example, if you can borrow money to capitalize a business who is going to able to afford your product? Low rates in Japan have not helped there. Further, more Stock Market declines in Japan leave the question of Bank Capitalization an issue. The BoJ has a lot of US Treasuries. Now the debate is, the BoJ's only "real" capital are these bonds and so they won't sell them out. But these are the Japanese. Remember? The people who bought Pebble Beach, Rockefeller Center and tons of other U.S. Real Estate at the peak of the market? The people who have banks up to their necks in poor Asian investments? Are they smart enough not to sell those bonds? I don't know. U.S. Banks are not much better off, as they have investments in Japanese banks. The Japanese may look for the quick fix and put the market awash with U.S. Bond holdings. Whatever. It's a worst case scenario but as you say, good quality bonds would hold value however a stock market decline will still affect everyone. Even in 1987 a stock market decline affected the moderately well off only for a few months but the effect on the average person was fewer jobs and lost opportunities. A lot of people tightened their belts after the 1987 decline and the relationship is clearly tied in with the stock market, I believe. I think the bond market is essential to the long term health of the economy but the day to day existence of the economy depends in large part on the health of the stock market.