Here's some questions for you JW
What happens if Japan blinks and China does not?
I believe the idea that Japan will start selling US$ is probably badly misplaced. They may however stop buying more US$. Why does anyone want a currency that its own country is purposely trying to wreck anyway?
Really, why not buy CD$ or swiss franks or anything but a currency that its own nation is trying to weaken?
Now, lets say Japan does stop buying the YEN. No, let's try it your way. Japan massively panics and sells US$. It's currency skyrockets up. What happens to Japan's exports vs China? What happens to the Japanese stock market? What happens happens to jobs in Japan?
Is this China's game after all?
Under the scenario I described won't there be huge pressure on Japan to outsource it all to China? China thinks in years. Hell I take that back, I mean decades. If China endures some more inflation while talking (and that is all it might be) more flexibility yadda yadda yadda, might it not really be a pyrrhic victory for YEN lovers if Japan blinks?
IMO China knows exactly what it is doing. If it can endure a little inflation to wreck Japan why not?
Already Europe is hurting. Badly.
It is bearing the brunt of this currency war.
Is Japan next on the list?
Why not?
If Japan loses, it loses its manufacturing base to China.
Certainly you have to admit that Japan "selling US$" will make its situation worse.
Tell me this. How much will Japan lose if it sells enormous ENORMOUS amounts of US$ for YEN? How Much? After that wrecks Japan, why would anyone want YEN? I think it would be a pyrrhic victory and an immediate short of the YEN. Who would want them AFTER Japan panics? Thus I conclude Japan is not about to give US$ haters their fantasy play of Japan selling $.
I really do not think people have thought this thru and understand what a bind Japan and Europe are now in.
The US is playing economic hardball and managed somehow to get interest rates back at (and in DEC with one more hike) above Europe's interest rate. I have not seen anyone comment on that.
The US is 100% without a doubt waging economic war on Europe, and from where I sit right now, most likely winning. Europe will be forced to cut prices to compete against the US or cut interest rates (lowering them below the US's) or start outsourcing to China as we have done.
Here is another question:
If Japan stops buying will Europe start buying?
Where is Europe's threshold for pain on a rising currency and loss of exports?
Finally, ponder this question:
If Europe starts buying US$, will the seller be China?
WOW, what a way to unload US$ if China really wanted to.
In reality, China will probably unload them by buying resources, and mines, etc etc etc. That is what China needs to grow.
If China holds pat what can ANYONE do?
Why SHOULDN'T China hold pat, given their long term outlook on life? That is where they have every other country F'd because they will act in their LONG TERM interest. A bit of inflation now, Who cares? Can they pacify idiots like Snow with token rate hikes and on again, off again on again off again talk of repegs, floating the RMB, and yadda yadda yadda mostly by people in China that do not set policy? Why not? Who knows? Do you? I don't.
I have said this before and will say it again, the way out of this mess if for a US consumer led recession. The longer it is held off, the deeper and deeper in deep sh*t will go Europe, Japan, and the US.
If this recession is fought, next up in deflation just might be Europe.
Followed by the US.
I call it rolling deflation.
In fact I am sure it is going to happen, the order is uncertain.
From where I sit
1)Japan (already in it and may be the first out of it)
2)Europe
3)US or UK
4)the winner of round 3
OK JW - Tons of ideas and questions for you.
Have a go at it.
Mish
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