> Sam wrote: > When someone says they're right and everyone that doesn't see it their > way is just stupid
But isn't that exactly what you're doing by presuming to know what I'm thinking? I don't hate the President, I just think he doesn't have the right type of intelligence to be President. BTW - I didn't call you stupid, I implied that it would be choosing stupidity to look at a few metrics and say the economy is doing well. And since you've made the mistake of pressing the issue, I'm going to educate you: Interest rates and bond yields are the traffic lights of the global economy: they tell economies when to go and when to stop. When traffic lights break down in the ways discussed below, there is a risk that the global economy can get snarled up or even crash. (1.) In theory, a rapidly rising current-account deficit should cause investors to demand higher interest rates to compensate them for the increased risk of currency depreciation. Dearer money then helps to dampen domestic spending and thus trim the external deficit. This is what happened when America's current-account deficit exploded in the first half of the 1980s. Real bond yields rose, cooling domestic demand. Along with a cheaper dollar, this helped to reduce the deficit. This time, however, the adjustment mechanism has jammed: real American bond yields have fallen not risen over the past few years, partly because Asian central banks have been eager to buy US Treasury bonds to prevent their currencies rising. So long as low yields continue to support America's housing bubble and hence strong consumer spending, they will block any significant reduction in the country's current-account deficit. (2.) In the past, a rapid rise in consumer borrowing and spending would cause a central bank to push up interest rates to curb inflation. Today, however, inflation is being held down by cheap goods from China and other low-wage economies, and inflationary expectations are well anchored thanks to the credibility of central banks. As a result, central banks have been able to hold interest rates below the growth in nominal GDP (the income from which debts must be serviced) for a prolonged period. This has, in effect, lifted any constraint on credit growth, allowing a bigger build-up of private-sector debt. (3.) A third broken circuit is that between interest rates and growth. Sluggish economies with low inflation require lower real interest rates than economic sprinters. This speeds up the tortoises and holds back the hares. Yet despite its faster growth, America's real bond yields are lower than Japan's and about the same as in the euro area. Yields are arguably too low for America, but too high for Germany and Japan, causing the growth gap to persist. Europe's single monetary policy has also severed the link between short-term interest rates and economic performance in the euro area, says Mr Artus. Because all member states share the same nominal interest rate, slow-growing economies with lower inflation, such as Germany and Italy, have higher real interest rates than fast growers, such as Spain and Greece. This is the exact opposite of what is needed, exacerbating the divergence in growth rates. - So there you have it Sam. Plan your investments accordingly. Thanks to the The Economist. ~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~| Find out how CFTicket can increase your company's customer support efficiency by 100% http://www.houseoffusion.com/banners/view.cfm?bannerid=49 Message: http://www.houseoffusion.com/lists.cfm/link=i:5:171268 Archives: http://www.houseoffusion.com/cf_lists/threads.cfm/5 Subscription: http://www.houseoffusion.com/lists.cfm/link=s:5 Unsubscribe: http://www.houseoffusion.com/cf_lists/unsubscribe.cfm?user=11502.10531.5 Donations & Support: http://www.houseoffusion.com/tiny.cfm/54
