>>disaster secenario is nikki and yen start to tumble, us treasuries get unloaded, US interest rate climb, us stock market reacts<<
Maybe so, but what's wrong with the following analysis? Even technically insolvent financial institutions have to put their assets to work somewhere. So where are Japanese banks and investment houses going to invest? Lichtenstein? Andorra? Tokyo? Not likely. For Asian banks, funds, and other investors there is no safer market than the U.S. As the dollar strengthens relative to Asian funny money, U.S. interest rates won't increase; if anything they will decline relative to the U.S. dollar while still looking attractive relative to the volatile yen. The short term danger for domestic U.S. companies is DE-flation, not inflation. The medium term danger traditionally would be declining exports and profits for domestic U.S. companies which depend on foreign sales for profits, though there is some reason to suppose all those Asian production plants they set up by may have a moderating effect. Only in the long term, as Asian curriencies begin to be perceived as stabilizing, will investment money in the U.S. start to flow into the beaten-down Nikki stocks and bonds which still are standing.
I think the Asian crisis is rather overblown, especially insofar as direct effects on the U.S. markets are concerned. But I'm ready to be educated. What do you international currency gurus make of all this, eh? |
