Either way, interest rates would have to fall in order for world bond markets to clear.

Unfortunately, when global stock markets crashed in October 1987, the insurance turned out to be useless, mainly because markets for hedging collapsed.

Sovereign interest rate spreads have been well behaved, the euro has strengthened, and equity markets have risen robustly.

The Treasury does not intervene in currency markets to bolster the dollar, and the Fed does not raise interest rates for that purpose.

Yet financial markets are not pricing dollar depreciation and a rise in long term US interest rates accordingly.

Funds switched out of Japan have shifted to other financial markets, with the chase for yield driving up asset prices and lowering interest rates.

Global stock markets have, overall, reached new highs. And credit markets show low spreads, while long term bond yields have fallen in most advanced economies.

Faced with a vicious combination of collapsing housing prices and imploding credit markets, the Fed has been aggressively cutting interest rates to try to stave off a recession.

For now, policymakers in countries with frothy credit, equity, and housing markets have avoided raising policy rates, given slow economic growth. But it is still too early to tell whether the macro pru policies on which they are relying will ensure financial stability.

Interest rates on Russia s bonds have risen by 2 3 percentage points, and many Russian creditors no longer have access to international capital markets.

The widening spreads between the interest rate on German eurobonds and some of the other countries euro bonds show that global bond markets take this risk seriously.

Debtor governments should call upon their own taxpayers to fund some of the national debt in order to avoid higher interest rates in credit markets.

But if they try to prick bubbles early on with higher interest rates, they will crash bond markets and kill the recovery, causing much economic and financial damage.

Drastic action is needed to prevent European bond markets from drying up. Trichet has said repeatedly that current ECB interventions do not target interest rates.

Until recently, the bond markets treated all euro sovereign debts as virtually equal, not raising interest rates on high debt countries until the possibility of default became clear.

Arms market

As the US and Europe lower interest rates to try to revive their economies and calm financial markets, the most significant impact of the sub prime mortgage crisis for Latin America may turn out to be inflation.

Interest

Markets of Magical Thinking

Money Market Resistance

The result has been frothy financial markets that could eventually turn bubbly.

To define an interest rate fully, allowing comparisons with other interest rates, both the interest rate and the compounding frequency must be disclosed.

On the contrary, rather than spiking higher following S P s unprecedented move, US market interest rates continued to fall, reaching record low levels.

Interest Rates

Strident calls for structural reforms mainly target labor markets, rather than product markets.

The BoJ has already announced it, the Bank of England (BoE) is likely to do so soon, and the Fed will certainly announce it at its November meeting. In principle, there is little difference between monetary easing lower policy rates or more QE that leads to currency weakening and direct intervention in currency markets to achieve the same goal.

The recent rise in oil prices also posed a challenge to world economic growth and, in particular, the economic development of many developing countries. Other possible constraints on growth included a lull or even reversal of the trend in appreciating housing prices in many large economies and a significant rise in long term interest rates and risk adverse financial markets.

The low interest rate helped by making the dollar more competitive, but otherwise monetary policy appears to have lost traction because of the condition of the housing sector and the dysfunctional state of the credit markets.

The Paris Club has also recently allowed debt buy backs or prepayment operations.21 In 2005, a number of debtor countries offered a prepayment at par of whole or part of outstanding Paris Club debt, taking advantage of lower interest rates to raise funds on capital markets for that purpose or using their extra cash funds.

What s Wrong With Labor Markets?

Consider also the credit markets.

Fearless Financial Markets

How is the arms market re supplied?

But the bond markets want more.

Stock Markets Fear of Falling

Turmoil in bond markets began to abate.

Photo from Instagram user alirezamalihi of celebrations at Tehran's bazaar

The SOEs compete in product and labor markets with the private sector, but less so in capital markets.

The Business Case for Europe s Refugees

What good will that do?

The Trouble With Interest Rates

When Interest Rates Rise

China s Interest Rate Challenge

The Real Interest Rate Risk

Interest rates are already low.