Mish.
Just want to say I appreciate the tough thinking both you and Russ are necessitating here. Umm, my head hurts a bit, but I think that's a good thing. (smile)
You stated:
[Michael Finsterwald] but the Fed doesn't have to hike for rates to go up. As the dollar falls foreigners would most likely stop buying or start selling treasuries and converting to something else ... [Mish] OK assuming you are correct pray tell exactly what are they going to buy? Euros? Yen?
If anyone is holding an asset that is in excess supply, why would they not try to exchange this asset for one that was relatively dear? That could be debt denominated in another currency. Or it could be commodities that are destined to continue to rise in prise as a result of easy monetary policies.
It seems to me that the whole point is that Central Banks "in the long run" will act like any other rationale economic actor - they will seek to hold assets that are dear, and sell those that are in excess supply (in the short run, I suppose banks like any other supplier might engage in questionable vendor financing ;) ).
If the U.S. Fed continues to conduct a policy that sees its currency and debt in excess supply, then Central Banks "over the long-term" will want to trade that asset in for one that is set to appreciate vis-a-vis the US$ and US debt.
No?
You later commented:
The YEN? Are you seriously proposing Japan would stand for that or do it themselves? So... You tell me just what are they going to do with all those US$ if they chose to sell them? In fact, how much will it cost them if there is a mass exodus?
If the Japanese feel US Treasuries are on a sustained trend of losing their value, and they are able to trade those holdings in for assets that will better retain their value (or even appreciate in value), then why wouldn't the Japanese sell. I mean, what would be the point of holding on to an asset that is destined to continually decline in value?
With regards to the economic impact of a higher yen or a higher Euro, well the impact of currency valuation would obviously be a concern to domestic industry and manufacturers. But if the U.S. is set to inflate its money supply at a greater rate than its trading partners, then it all washes out in the end, no? I mean, there's no reason we couldn't see the Euro at 2 if the world was faced with an avalanche of US$.
BTW, I don't think this is a likely scenario because I believe U.S. policy will eventually normalize its interest rate structure. The costs of not doing so are simply to grave. But if they don't, sure hyperinflation is a very real policy response option. I mean, it "could" happen. It "has" happened.
By the way Mish, if you are able to contribute your thoughts to a previous post I addressed to you (link provided below), I would really appreciate your comments:
Message 20651958
Thanks again for all your efforts Mish.
Glenn |
