<The problem is, the only way to reduce the dollar reserves, or to reposition the reserves away from the dollar, would be to sell off huge amounts of the US currency - a move that policymakers fear could strain relations with Washington. >
Gidday Jay, In my 1986 - 1989 London/Belgian days, a colleague and I who were interested in investments would discuss 'business'. We'd consider our investments 'overpriced' [like the Nasdaq at the end of 1999 though far from such extremes]. We'd say, "But what the heck would we do with the money if we sold?" As in, where is the next best investment?
An impecunious colleague was bemused by this and said that he could help us out in that department.
Now, Japan is on a slightly grander scale than my Globalstar/QUALCOMM axis and vastly more than my dabblings in 1987 [which I escaped from largely unscathed thanks to investing in real companies instead of debt-filled puffballs]. Japan's transactions can affect markets more substantially than mine can. If they sell all their US$, they will get a LOT less for their last $ than they do for their first.
But there is another solution for them and I think our Belgian buddy [who was English, but we were all working in Zwijndrecht at the time] is on to something.
Japan could go shopping!
Now, at first blush, $400 billion is real money and I thought that would certainly make things happen. But let's divide it up for a start. 120 million Japanese means less than $4,000 per person. They can't do a LOT of shopping with that.
Heck, they can only buy Microsoft [$360 bn] or GE [$370 bn] and a large slice of QUALCOMM and they'll be broke! I'm not recommending that [given their forays into high-priced real estate in the 1980s they could live to regret the decision].
So, what's the big deal about Japan's reserves? Microsoft's cash reserves and short-term investments are not as big, but at $26.9 billion at 31 Dec 2000 they are financially robust and significant for a company compared with the world's second biggest economy.
Japan could lend it to Japanese companies to buy Chinese land, buildings, CDMA production lines, ASICs and stuff as well as hiring thousands of Chinese to make CDMA systems for China and everywhere else. That's a much more civilized and successful way of creating a Greater Co-prosperity Sphere than bombing USA warships in Pearl Harbour and murdering, raping and destroying Chinese people and cities.
They could buy lots of stuff from the USA, which would have the happy effect of giving a rev to the USA economy, which would also boost the value of their remaining US$ holdings.
Uncle Al has for a year been persuading people that sitting on US$ is NOT the road to riches. He is diluting them flat out and has hacked interest rates to ribbons. Spending US$ is the order of the day. Those who defy the Fed will find their US$ value eroded compared with other assets. GO SHOPPING! He cannot say it much louder.
Japan should go shopping.
Mqurice
PS: Why should 'Washington' be upset? What the heck do they think Japan is going to do with the US$ when they are being diluted away? Would Washington really be upset if Japan sold their US$? That would push down the US$ which would hurt Japan more than the US since Japan is holding a lot more reserves. It would also make US exports more competitive. |
