In a message dated 98-01-26 18:24:22 EST, you write:
<<
Yet what else can they try? At some level of international indebtedness
the willingness of speculators to hold dollars will disappear, and it
would appear from your chart that that day is fast approaching. At
least the low interest rate approach has some hope of saving the U.S.
stock market from a true melt down and could provide benefits both
domestically and internationally in propping up demand and staving off
the global recession (depression?).
>>
Dave,
While I agree that the dollar has been in a "medium-term" decline, for the
short term, the "flight to quality" has been unambiguously into dollars. The
Yen appears to be in trouble and is exposed in Korea. Nevertheless, the
Japanese probably have the deepest pockets of liquidity - assuming they can
get at their citizen's postal savings accounts.
I don't think the FRB is really ever in control as most people think. Though
they can raise short-term rates, they can't go lower than the underlying
inflation rate for a prolonged period. The BOJ pushed their 10-year notes to
about 2% and can't get the Nikkei above 18,000. Moreover, though we've had
the greatest bond rally from 1980-1997, the volatility on the 30-year bond is
an ever-present threat (look what happened in 1994).
Jason
