 SM
|
|
Who We Are
Money Focus Personal Finance Insurance Mortgages Taxes Step by Step Hot Topics Contact the Editor
Featured Site TradersDigest AfterHourTrades.com, Inc. Featured Columnist: 
All content is © copyright (1998-2003) BonPaulProductions (all rights reserved) |
Order your copy of Building Wealth in a Paycheck-to-Paycheck World by Paul Petillo. It is packed with safe, proven wealth-building strategies that cover all the major components of a balanced financial plan, including:
09.25.03 Thomas Freidman of the New York Times said of the Bush administration that "the President has the reach but doesn't have the grasp". He made that reference about the handling of the Iraq situation, which, because I write about money, I will avoid. But like so many Presidential policies, they all tend to run in along the same theme.
Take for example the message released by John Snow, Secretary of the Treasury and Alan Greenspan, chairman of the Federal Reserve Board. These two money chiefs were in attendance at the G7 meeting over this past weekend and from that convergence of major industrial countries came what might have been called an accord. An accord is usually some sort of agreement, both behind closed doors and afterwards that suggest a concern for some sort of currency valuation that would have a global economy.
To bring you up to speed as to why this has any effect on the bond market, it is important to have a basic understanding of what is at play. The G7 or G8 a number wholly dependent on whim I suppose have been meeting since 1975. The major players in these meetings are concerned with the economic health of the world. What they attempt to do is fix policies that are good for the global village as a whole keeping everything on an even keel. When they release an accord, it is usually an attempt, according to the University of Toronto website, to continue to deal "with macroeconomic management, international trade, and relations with developing countries." This intervention can have some serious consequences for us here at home.
So the G7 members come out of their meeting and suggest that China and Japan stop trying to devalue their currencies. When a country does this, it makes their goods cheaper to purchase. Although Japan was quick to call the unified message meaningless, it is also important that we realize the vulnerable we are to both of these nations. China and Japan love our debt. Every time you hear the President tell Congress that he needs more money, he could cut out the middleman and go directly to the Far East.
Also important to note is that US is saying strong dollar policy, a throw back to the Robert Rubin days when he held the helm of the Treasury in a different economic time, while hoping that the dollar eases just enough to keep our debt attractive to these foreign investors. All this while not driving the economy into a tailspin. But too many folks are actually wondering if we have a significant grasp of the situation. What the US will end up with as a result of a tip of the scales in any direction is a weak dollar, falling bond prices, and the possibility that our standing as an economic force will be tripped up in the near term.
The effect of all of this on bonds has been expected. With prices falling in tandem with the dollar, the expectations that China will do nothing to change they way they do business. Foreign investors buy our debt because they assume, based on the past, that we will repay it, in full. Bond investors know though, that as Treasury prices fall, yields increase making the serviceability of our ever increasing federal budget cost more and the profit of currently held debt disappear.
There is some margin for error built into this confusion. Bond prices could recover if signs from the economy begin to look cohesively poor. Retail sales numbers posted on Tuesday gave some relief to beaten down bond prices. Federal Reserve governors are running about the country expressing concern over the so-called jobless recovery. These are not what the kind of signals that the stock market needs even as equities seem to be steadily gaining ground
To recap all of these events you have a ton of debt being sold by the US. You have a couple of buyers who have been purchasing the lion's share of these issues. You have the chance of a weakening dollar which makes previous currency purchases turn into losses. Jobs continue to be shed by the American business place in a continuous effort to show profit with less bodies, less pension obligations, and more productivity.
Fortunately, the markets aren't reacting to all of this. If they did, it would be disaterous. Fortunately, those of us who are really looking are seeing one thing: our money policy is reaching for straws and grasping nothing but air.
|