[FoRK] What's that sound???
Wed Jul 27 08:23:13 PDT 2005
Albert S. wrote:
> Good point on the influx of cash from outside the U.S.
> keeping long term interest rates including mortgage
> rates low.
> This phenomenon has been referred to as a conundrum by
> Alan Greenspan, up until recently he claimed to not
> know why it was happening. Perhaps because he really
> didn't know, or perhaps because as you may know the
> Federal Reserve tends to be tight lipped about it's
> goings on.
> Now, if we trace back where all this 'foreign' cash
> comes from it will lead us straight back to the U.S.
> federal reserve. As you may already know it is the
> Feds job to manage U.S. monetary policy. It does this
> basically through two mechanisms, adjustments to the
> money supply through sales and purchases of debt
> securities, and by setting the Fed Funds interest
> Back in 2002 the Federal Reserve opened the floodgates
> of liquidity by taking the Fed Funds interest rate
> down to 1%. Simultaneous to this, I should note,
> Predident Bush was also stuffing money into the
> pockets of Americans by lowering taxes. American
> consumers took this money and used it to go on a
> buying spree, buying up Chinese and Japanese made
> goods. This lead to a ballooning of the trade
> surpluses of China and Japan and a surplus of U.S.
> dollars in the Chinese and Janpanese central banks.
> Those central banks took those U.S. dollars and bought
> U.S. Treasury securities. And, as you already know
> demand for bonds pushes up the price for the bonds but
> lowers the yeild(interest rate).
> Some details have been left out, but as you can see
> the surplus of money keeping mortage rates low is not
> originally 'foreign'.
Yep, aka an "asset bubble" aka "realestate bubble".
On a closely related note... there were some numbers recently released on US 'industrial output' that were
"suprisingly good on the upside". Increased industrial output is a good thing; manufacturing, jobs and all
that, right? Digging a bit deeper, half the increase was due to increase in electricity production.... to run
air conditioners... because this is an unusually hot summer...
So I'm writing a letter to the governer of my state with a fool proof plan to dramatically boost the
industrial output of our state; everyone should immediately lower their thermostats to 65 F. Yes, your power
bill will increase, but think of the economic growth! Be patriotic! Do it for your country!!
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