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Author: Lokicious Big gold star, 5000 posts Feste Award Nominee! Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: of 35361  
Subject: Post's Samuelson on low rates Date: 3/2/2005 9:16 AM
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http://www.washingtonpost.com/wp-dyn/articles/A64396-2005Mar1.html

"It's all a mystery to me..."

Actually, a good summary of various explanations and concerns about low long term rates (Greenie, you may recall, said he was clueless).
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Author: 2old4bs Big red star, 1000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 11954 of 35361
Subject: Re: Post's Samuelson on low rates Date: 3/2/2005 9:30 AM
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(Greenie, you may recall, said he was clueless).

Aren't they really all clueless? ;-)

2old



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Author: Lokicious Big gold star, 5000 posts Feste Award Nominee! Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 11958 of 35361
Subject: Re: Post's Samuelson on low rates Date: 3/2/2005 2:31 PM
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Greenie, you may recall, said he was clueless).

Aren't they really all clueless? ;-)


2old,

The problem is, all joking aside, they are clueless, as are we. For example, the suggestion Samuelson seems to prefer is that we are going back to the '50s, with low bond yields and low inflation. But think about all that is different:

1) Back then, only a small, wealthy elite, plus institutions, invested in stocks, and everyone else just shoved money in the bank or bought US Savings bonds, and the savings rate was much higher.

2) Back then, the federal government wasn't running a deficit in the general fund of 6% GDP.

3) Back then, consumers weren't in debt up to their eye-teeth, and people who did buy homes bought them to live in for their lifetimes.

4) Back then, there wasn't a massive generation about to retire, needing to cash in on what savings (including S.S. ???) to survive.

I'm clueless.



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Author: mjcalab Two stars, 250 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 11971 of 35361
Subject: Re: Post's Samuelson on low rates Date: 3/3/2005 2:12 AM
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Why clueless?

Could it be that Greenie is not clueless but putting politics first? If interest rates are looked at as the cost to barrow money then they are determined by supply and demand. The Fed and banks create the supply. The private and public sectors create the demand. Interest rates are low because the supply of money has been growing at a much faster rate then demand for money. The Fed's own data demonstrates this: pages 13 and 14 at http://research.stlouisfed.org/publications/mt/20050301/mt_20050302.pdf

Guess Greenie doesn't read for many people have described how unprecedented public and private spending has created excessive demand for cheap Asian goods. The Asians have not in turn used that money to purchase what we produce, which would in kind have stimulate our economy, but instead purchased our bonds which caused and increase in the price of those bonds which lowers the interest rate. It is very sad to see a man with his power and responsibility fake ignorance.


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Author: Lokicious Big gold star, 5000 posts Feste Award Nominee! Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 11977 of 35361
Subject: Re: Post's Samuelson on low rates Date: 3/3/2005 10:55 AM
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"Why clueless?

Guess Greenie doesn't read for many people have described how unprecedented public and private spending has created excessive demand for cheap Asian goods. The Asians have not in turn used that money to purchase what we produce, which would in kind have stimulate our economy, but instead purchased our bonds which caused and increase in the price of those bonds which lowers the interest rate. It is very sad to see a man with his power and responsibility fake ignorance."

What Samuelson is suggesting is the explantion if not this simple. Clearly, Asian money flowing into long term T-bills, and more recently also mortgage securities, is one factor in keeping interest rates low—whether to help their export economies, to protect their current holdings, or because U.S. assets are still more attractive than anything else, is a crucial question for what will happen long term.

But there are other factors at play, on both the demand side for loans and the supply side of capital for debts, and a lot of economists are unsure what will happen. For example, with low Fed rates, institutions borrowed from the Fed, then bought longer T-bills and Mortgage Securities with the money for a nice gain (this is how the Fed directly affects longer rates). As Fed rates go up, these institutions will not continue to buy T-bills as Mortgage Securities at current rates and may or may not dump what they have. Also, down the road a bit, the continuing increase in surplus from Social Security taxes will peak, long before the cash flow turns negative.

Lots going on besides the Asian factor. Clueless is an exaggeration—we can outline the various sources of supply and demand. But the question of why supply of capital continues to accept low rates and whether that will continue and whether change is gradual or sudden is not answerable, and that is what the article is really about.


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Author: 2old4bs Big red star, 1000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 11979 of 35361
Subject: Re: Post's Samuelson on low rates Date: 3/3/2005 4:26 PM
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I'm clueless.

As am I, but that doesn't stop me from crossing my fingers and clicking my heels while wishing that in 8 years interest rates will be much higher ;-)

(In 8 years I hope to have a lot more 'capital' than I do right now, and I'll just be retiring)

2old


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Author: GREYFOX Three stars, 500 posts Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 12036 of 35361
Subject: Re: Post's Samuelson on low rates Date: 3/12/2005 4:48 PM
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Lots going on besides the Asian factor. Clueless is an exaggeration—we can outline the various sources of supply and demand. But the question of why supply of capital continues to accept low rates and whether that will continue and whether change is gradual or sudden is not answerable, and that is what the article is really about.
Loki-Things that cannot continue foreever-- WILL NOT.i.e.-Cisco,the bubble in Japan,the nofty Fifty.

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