But increasingly it is thought that foreign governments are manipulating the U.S. bond market in order to keep the dollar low compared with their currency and therefore stimulate their exports to the U.S. This would seem to indicate that the greater our trade deficit, the lower the long-term bond rates will get, or at least stay near their current levels! Can this be?No it cannot be. Keeping the dollar low compared to their currency would make the foreign products more expensive to us and we would not buy from them, so their exports would be reduced not stimulated. No matter though for this is not what is taking place. Also the trade deficit is only one factor and by itself one cannot build any kind of scenario regarding what will happen with interest rates in the future. There have been many current articles regarding this subject these two deal with the subject and are interesting. http://www.investorsinsight.com/otb_va_print.aspx?EditionID=141http://www.pimco.com/LeftNav/Late+Breaking+Commentary/IO/2005/IO+July+2005.htm
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