Zeev, if there was a shortage of 120 Billion, would not interest rates have gone up. Also, if there was a shortage of cash being re-invested in treasuries last yr which was only met by large foriegn inflows, what happens this yr when the foriegners are scraping for cash. On another point, last time you said watch Rubin convert all those short term instuments into long term if interest rates go up. How would he do that, and why is he not telling the Koreans about it.
There was, IMO, shortage of treasuries, meaning the government borrowed less than it paid out as interest. The government rolls over its debt. Whe a rollover occur (they pay let say some 10 years debts that is due, plus interest). When the roll over is smaller than what is paid out, there is more demand for the treasuries than supply. That causes the price to go up and thus interest rate to go down. I believe that during the second half of 1997, this imbalance was partially offset by sale of treasuries by BOJ. If it were not, the yield curve could have become inverted.
Unfortunately, I do not know what Rubin does, and he is much smarter than I am. However, I can try and make some guesses. Rubing cannot go out there and replace at once few trillions of short term debt, he must keep more or less in balance with the instruments that are coming due (or he will create a time inversion in the rates). I do think, however, that when interest rates where much higher, within these constraints, Rubin issued more short term debt relative to long term and now, I think he is gradually reversing this and using the opportunity presented by low interest rate to lengthen the maturity of the debt. This is a lengthy process and will probably continue as long as the long term debt is under 6%, IMO.
David, I am not sure about your explanation. Assume for a minute that the excess SSI was not put into treasuries, where will that money be kept? Will it earn interest there? What happens when the bond in the SSI chest matures, does it not go back to pay SSI requirements? The fact that the excess funds goes into treasuries (rather than speculating in the stock market as some are suggesting-privatization) is just a measure of conservativeness. Treasuries are currently considered the safest investment paying interest, so the excess SSI accumulates there, and when these bonds come due they are paid up, if I bought a bond, I would be paid back and it is the same with SSI, if they bought a bond and it becomes due it is paid back. I just do not see a problem in putting the excess funds into treasuries.
Zeev, I think the problem is that once it is put into treasuries, it is promptly spent on some silly govt giveaway. It is not earning any interest. All it is creating is an entitlement mentality in the population and some more loyal voters.
TRF has just a huge runup over the last couple of years and is just way too high for me at these prices. IMHO, we are going to see some ugly stuff there when Yeltsin drops dead from drinking too much vodka ( he is still "resting" at his dacha only to cut it short to go on a snowmobile ride for a photo-op).
YOur statement:"they have a democratic system in place and freedom of press etc. I really believe in it for the next 5, 10, 15 years."
I respectfull disagree on the system & freedom of press issue...seems to be Mafia and old communists turned "capitalists" are running the show. I feel very strongly that China/Hong Kong will do great over the next 18 years (my investment horizon, my son is only 6 weeks old<g>).