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Strategies & Market Trends : Currencies and the Global Capital Markets
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To: Zeev Hed who wrote (2658)12/23/2000 4:48:00 PM
From: Henry Volquardsen  Read Replies (2) of 3536
 
Zeev,

we definitely are in agreement on Asia as a leading sore spot. I have been very nervous about Japan in particular and Asia in general for awhile now. I've seen nothing in recent Japanese developments that I would consider encouraging. I suspect they will be a concern of the global economy for quite a while into the future.

I didn't mention the trade deficiet because I appear to be pretty radical in my thinking on the subject. In other words a lot of people think I'm nuts :) In short I'm not the least bit concerned about the trade deficit. To me it is a result of economic conditions not a causitive element. The trade deficit could not exist if there was not an equal and entirely offsetting net demand by foreigners for investment in the US. As long as capital flows are unencumbered and foreign exchange free floating the markets will respond very efficiently between these forces. And the ability to make frequent small adjustments will forestall a big adjustment. I've thought about this subject a lot and am just not that worried. The empirical evidence seems to support my thesis. Over the thirty years I've followed the markets the US has had large and growing trade deficits that have been the subject of much hand wringing. The only times, however, that it has been a problem is when the US has been structurally unattractive and coming out of a period of more rigid capital flows. So as long as we keep capital markets free and focus on make our internal markets structurally efficient then the trade deficit will be a result not a cause. Btw I won't be insulted if you think I'm nuts.

Henry
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