Prices, Interest-rate and Bonds...

Liberalizing the bond-market in INDIA would increase competition resulting in lower interest rate... The RBI has also proposed to liberalize foreign borrowing through masala-bonds... We now have competition from abroad to sell debt...Masala-bonds are rupee denominated bonds offered to overseas investors which do not need hedging... however, borrowing in foreign currency must be hedged by currency derivatives... Economists do not favour borrowing in foreign currency because of the lower reserves and also because it cannot be printed by the central bank...If you could borrow from a foreign country at lower interest-rate, domestic-demand for funds would go down and domestic banks would lower interest-rate to increase their demand... Domestic-lenders would face competition from abroad... Moreover, inflow of foreign funds would also likely to lower interest-rate... More investment and more supply could also lower the price-level and interest-rate... It would help transmission of rate cuts by the central-bank..

Lower-price-level and lower bond-yields mean higher bond-prices and returns... A negative-yield would even increase bond-prices more... Bonds are already inflation protected since when yields go down bond-prices increase... The real-value of bonds is protected... More supply of savings would lower bond-yields and increase prices, therefore bonds are safe... Lower prices increase the value of savings if other things remain constant...Low inflation and interest-rate mean savings would be discouraged and spending would be encouraged... Including the dynamics show that in the future inflation and interest-rate would rise because of higher spending... Lower-prices or higher real-interest-rate could make people save less and spend more, while higher-prices or lower real-interest-rate would increase the supply of savings and could decrease spending... According to Wicksell higher real-interest-rate means higher return on capital... We need to explain the relationship between economic-variables in the dynamic sense because expectations are equally important for the outcome... The real-world is dynamic...

Keynes said that money is not scarce when the central-banks can print currency... Supply-side problems and inflation is the main cause for tight money-supply because it reduces the value of capital... If they are not present then the central-banks may continue with lose money to increase employment, demand and economic-growth and in some cases with negative-real-interest-rate... Public-spending, that boost innovation and productivity, on education, skilling or re-skilling and, if necessary, on infrastructure is important for increasing real-wages, with low inflation, and, demand and economic-growth when population-growth-rate and demand is going down in the most of the developed-world - Japan, the US and Europe..