ds. Then, as they mature, you can buy new bonds. This enables your new bonds to pay higher yields if the rates rise. While businesses are enjoying lower raw material prices, theyre paying higher wages. And because very few companies can raise their prices without the fear of losing customers, they face the enigma of squeezed profits. This could hurt stock prices and, in a worst case scenario, trigger layoffs if companies try to maintain profit margins. However, for the time being, many experts say moderating prices are likely to drive the economy. The immediate force behind moderating prices is the Asian financial crisis. The values of most Southeast Asian currencies have slumped dramatically against the dollar. That means exports to the United States are suddenly 40 or 50 percent cheaper. To combat this, many of these countries are flooding the U.S. market with a variety of cheaply priced products. This forces companies with in the U.S. to keep their own prices in check to compete with the foreign goods. But as big a role as Asia plays, it is only one of the several long-term factors that have long been pushing prices down. The biggest yet has been the opening of the global marketplace in the past decade, including those in China and Eastern Europe, that have given U.S. companies access to cheaper labor as well as new venues in which to market their products. Technology and the strong markets have enabled companies to cut back on costs and reinvest in more plants and factories.As attractive as disinflation is for may people, the slide into outright deflation could be very harmful. "When it turns from a low and stable inflation to a general decline in prices, or deflation, then youve got a problem," said William Dudley, chief U.S. economist at Goldman, Sachs & Co. It is in my conclusion that I posit my predicted interest rate for the conventional 30 year Treasury bond on the date of December 31,1999: 4.55 %. It is th...
