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Strategies & Market Trends : India Coffee House -- Ignore unavailable to you. Want to Upgrade?

To: Andy H who wrote (4779)	6/29/1999 4:46:00 PM
From: Raymond Duray	Read Replies (1) \| Respond to of 12475

Re: FRB and International Implications Hi Andy, You articulate far better than I can many of the concerns and issues that the Fed has faced in the past. Since we seem to be in general agreement on the domestic side, I would like to take a few moments to speculate on what is transpiring now behind closed doors with the FRB governors and their discussion of world-wide implications of Fund rate policy and Open Market Operations out of the NY bank. 1)Euroland. The inexorable slide of the Euro vis a vis the USD is something that I consider with fair amount of foreboding. The relative strengthening of the dollar can do no good for our exporting industries. A rise in interest rates in the US can only exacerbate what is a moderately (to date) bad trend. I can foresee all sorts of arbitrage being attempted in the forex markets should the FRB raise the FedFunds rate by more than 25 tomorrow and 25 at the next meeeting. This is what the guys in the futures pits are betting on and anything different would cause a panic, IMHO. To date, operations at the Open Market window have been consistently accomodative and I wonder if there is any change in mind for this. I have not thought thru the implications for the Fed reducing liquidity thru Open Market Ops and how this might affect the Euro. Any thoughts? 2)Japan. There's an SIer with the moniker of ahhaha who sometimes contributes some very good economic analysis. His contention is that the Fed policy since 1991 has been very much influenced by the necessity to prop up the BOJ and prevent catastrophe in the Japanese finacial markets. As we are well aware, most of the major commercial banks in Japan are deeply underwater. The MOF is in classic denial and has been completely immobilized for the past 5 years. A clear indication of the problems of bureaucratic entrenchment and retrenchment. Seemingly, there is nothing that can be done to remove these old fools from the control switches on the Japanese financial system. At present, we are faced with a mixed bag in Japan. A lot of their cash is being repatriated at present, and is bolstering the Japanese system. Since the US govt. is in surplus, our needs for their cash to keep the TBond market afloat has been ameliorated. Too steep a rise in the funds rate and consequently the TBond market would reverse the trend and bring that cash back here. Should the yen weaken, there might be some relief for the Japanese exporters, but I believe the financial system could suffer from the withdrawl of liquidity from their system. The Nikkei, which is enjoying a modest recovery at this time would probably head back south. Fed policy vis a vis Japan must necessarily walk a tightrope. Comments welcome. Rest of Asia. This part of the world is in moderate recovery from the disasterous days of 1997. I think that the link of Fed policy to this part of the world is quite a bit more tenuous than to Europe or Japan. I have no real idea what a precipitous rise in U.S. rates would do here, other than to suggest that the exporting industries of the Asian tigers would be negatively impacted as consumer demand in the U.S. is reduced. Threaders: Does anyone have information on the response of the other members of the Bank for International Settlements to US FRB policy? Best, Ry