Money, banking and financial marketSuppose sustainable peace is reached in Iraq and Afghanistan, reducing military spending by the U.S. government. How would you expect this development to affect...

Money, banking and financial market

Suppose sustainable peace is reached in Iraq and Afghanistan, reducing military spending by the U.S. government. How would you expect this development to affect the U.S. bond market?          

Expert Answers
vangoghfan eNotes educator| Certified Educator

The stock market would probably soar for all kinds of reasons, including the remote possibility that the savings might actually help to reduce the U. S. budget deficit. Another possibility would be that Iraq would become a dependable supplier of oil to the U. S. Finally there is always the chance that a working democracy in Iraq would provide a model for other states in the middle east. Genuine peace in those two countries would probably be seen by investors as a very good thing.

stolperia eNotes educator| Certified Educator

As others have indicated, the expectation based on past experience would be that the bond market would decline and the stock market would increase substantially if a real, lasting, sustainable peace in the Middle East were achieved. The movement (presumably) of United States budgeted funds from military purposes to other domestic concerns would also support the likelihood that the stock market would expand in response to this scenario.

justaguide eNotes educator| Certified Educator

The reduction in expenditure in the wars in Iraq and Afghanistan would decrease the budgetary deficit of USA, perhaps make it a AAA rated nation again. That would decrease the bond yields. The stock markets would rally as there would be anticipated increase in the funds saved being used for the benefit of companies. That would divert more money from the bond market to the equity market.

readerofbooks eNotes educator| Certified Educator

This is a great question. There is usually inverse relationship between bonds and the markets. If your scenario takes place, the markets will probably rise and the bond market will go down. But this is not completely airtight in our economic climate. The world and the markets seem to be more volatile than ever and hence unpredictable. This is where there is a rush to gold.

pohnpei397 eNotes educator| Certified Educator

If this were to happen, the federal deficit would likely go down.  This would mean that American debt would look even less risky than it usually is.  If that happens, the interest that would have to be paid on US bonds would likely go down as there would be less risk in those bonds.

litteacher8 eNotes educator| Certified Educator

Investors speculate based on all kinds of things, especially threat of war in the Middle East.  They might seek to put their money in bonds instead of stocks if there seems to be imminent danger, but peace in the Middle East might result in more money in stocks.

kapokkid eNotes educator| Certified Educator

I think I would echo most of what has been said in that the interest paid on bonds would likely come down as it would, in theory, create a somewhat safer outlook for long term US debt.

But lasting peace...  unlikely at best don't you think?

literaturenerd eNotes educator| Certified Educator

I, too, would believe that peace could benefit the United States monetarily. As for long term though, the US is simply in too deep. Citizens would not likely see immediate relief (outside of the soaring gas prices).

eaamon | Student

if you are talking US bonds. I feel they are worthless. the US is basically bankrupt. now the why. the same thing is going on in Europe.

almost all countries have been buying the cheapest labor made items....China.

everybody has sent their monies there and they are selling bonds to the money printers the Fed as in Bernanke. there is nothing backing the money he prints but he is giving it away to the US by buying bonds from the US government. the US is using the worthless cash to give the IMF money to help the other bankrupt countries.

one day the dominoes will fall and the US will be the hardest and last since they have supplied the most. there is nothing to back it. Fort Knox is empty.

so basically the money problems are almost world wide. who will buy worthless bonds.

as for the stock market going is just a barometer of companies worth.

but things could change if China does start to re-invest in the countries the have squandered.

basically while we were warring in the Islamic countries we lost the Economic war to China.

the problem is very few people besides me can see that fact.