Bosco, in the last 5 years the Japanese have divested themselves of a lot of real estate they had (at deep discounts to what they paid, like on the Rockfeller center, they dropped a cool half a billion bucks and I understand that they also unloaded a bunch of golf courses at half what they paid for). That does not mean that they do not have substantial assets left here (like all the car manufacturing plants and wafer plants etc.).
If they pull out of treasuries (and they have during the last few months of last year), it all depends if their pull out can be absorbed by the market.
I have made an argument that there is an oversupply of treasuries to the tune of about $350 Billion this year ($300 billions in interest paid and $50 billions that the government is not going to roll over because of our budget surplus). Thus the Japanese can "pull out" that many treasuries without having an impact on our interest rates. Frankly, I think they should and redeploy these as Yens into their own economy. If they did that would put pressure on the dollar (good for us, in measure) and if they indeed redploy this into their economy, then this on top of the 115 or so $ billion they have promised to pump into their economy is going to cause their economy to boom and the Asian malaise cured (Japan will then import from it Asian neighbors and we'll get an export lead revival in those economies.
Now, will that happen? I doubt it very much. It seems that our friends are bent on committing national Hara Kiri and well on their way doing it.
In practice, I doubt they will "call back" their treasuries and together with the outflow from private citizens I have discussed before, the demand for our treasuries is going to exceed supply, and thus we are going to have lower interest rates, as I have been maintaining for more than six months, now.
Zeev |
