Hi DJ,
<<>>3. The US balance of payments. The U.S. attracts investment. The figures also typically don't include services, software etc. The Euro won't soon replace the dollar; the UK is even hesitant about using the Euro. In Japan they love the appreciation of the dollar. The Japanese Government might shift from bonds to stocks but they are most unlikely to sell U.S. investments outright. They'd catch it from the Japanese exporters if they did. I imagine the Chinese government thinks similarly.
<<not any more from Taiwan though, if I understand you correctly>>
I do not actually agree with my friend on this point entirely. Firstly, as CB observed, folks are generally motivated by money and fun, and absent the former, than hard to sustain the latter. Absent the latter, the former is then not done with anything remotely resembling genuine enthusiasm.
You had commented on the Japanese leaders that can say no. The Prime Minister, his ex-Japan McKinsey advisor (Ohmae), and the Governor of Tokyo are not folks that say yes, especially when saying such goes against their most basic of feelings.
Japan owns much US treasuries, and collected these from earnings off export to the US. To sustain the joy of making money, Japan had consistently went for a lower, rather than higher Yen.
Now, suppose for a moment that the folks out here decides that the US is heading for a big fall in consumption, and that there is no particular net advantage to be gained from having a weak currency vis-à-vis the dollar because export to the US is heading into the tank anyway. Then further suppose that the folks out here needs to have money to increase infrastructure spending, to save banking systems, to buy diesel powered submarines, and to build rockets.
I am not suggesting that these are happening now or will happen soon, but I am suggesting that money serves many purposes, and the least valuable service is to loan it to the FED only to see the FED wash the value away in an avalanche of rate discount and liquidity creation.
I went to the countryside of Yichang for fishing and dinner last night, and rode in a Lexus SUV, traveling on a stretch of a new superhighway under construction, connecting Shanghai to Tibet, crossing a superhighway that connects Beijing to Guangzhou. I would imagine these projects cost money, creates employment, and can be used for the next one hundred years. I think the Chinese have learned well from the Americans.
I would further imagine that the banking systems in both China, Taiwan, Japan, and Korea require refurbishment of one sort or another, and that further liquidity is required to satisfy the mania that surely will be.
The average age of cars on the road in Japan is over 10 years, I believe, and so think about the pent-up demand!
I made this point earlier. The liquidity bubble and its associated mania get passed around the world via trade and capital flows. From the US to the Arabs to Japan, back to the US, with leakages to Latin America, China and SE Asia. Eventually it will be time for the bubble to move on from Nasdaq, as it had left the Nikkei before.
Bottom line, the money is now no longer needed (as opposed to nice to have) in the US, as evidenced by the fact that money, in the form of debt and equity, are not being treated well. The money is needed elsewhere. Keep dropping that FED rate, and watch, by and by, the electrons move, along Global Crossing bright fibers, routed through CSCO switches, from the ATMs in Paramus New Jersey, to the ATMs in, oh, Tokyo and Shanghai.
Money is fickle. When folks knew the central banks were going to sell gold, the folks got ahead of the CBs and sold.
Now, if people begin to believe that Maestro Greenspun is going to cheapen the dollar, and yet be unable to sustain US consumption, then what should the folks be doing?
Exchange rate trend changes direction sharply, at the margin of money flow, and moves quickly to new levels, driven by the speculators. The fuel has been piled high by the FED, now only a spark is necessary to get the next party going.
Chugs, Jay |
