Re: PKT digest 966 no brainer

[Randy Wray <lwray@xxxxxx>]

Sorry, Alan, it is still your unlucky day. You misunderstood your
game. My bond has the highest expected return AND THE MOST STABLE
RETURN; it is 6% always. Yours has the lower expected return and a
return that varies each year over the 10 yrs from large negative
numbers to large postive numbers. Diversifying will only help to
reduce the gap between the expected return you receive and that I
receive; but I will still win.
I really don't understand your hocus pocus on central banks. Why do
countries with higher inflation have higher interest rates? Because
higher interest rates are the way central banks fight higher
inflation. Give one shred of evidence that the Fed does not fight
inflation. Your hypothesis might stand up if it were true that tight
policy quickly lowered inflation--something that cannot be verified
empirically. so as inflation rises, tighter and tighter policy becomes
"necessary" in the name of fighting inflation. Unfortunately, this
raises inflation (you did not understand my point about tight money
causing inflation_), leading to perverse policy. I know this will all
go against the conventional wisdom you prefer.
When inflation finally does come down, the central bank loosens; the
lower the inflation rate cross sectionally, the lower the central bank
believes it can push the overnight rates.

randy wray