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Strategies & Market Trends : Currencies and the Global Capital Markets -- Ignore unavailable to you. Want to Upgrade?

To: Lee who wrote (2317)	12/15/1999 9:30:00 PM
From: Henry Volquardsen	Respond to of 3536

However, I also view the US through rose colored glasses. I have to keep checking myself on this as well, I tend to be pretty optimistic on the US long term economic prospects. I like bouncing my views off of other people as a reality check. Thats pretty much what I did here with Japan. As the Yen adjusts what pressures will that cause? For example, were you to model 200 Yen, 250 Yen, etc, how does the system respond? That's the $64,000 question. I've been bouncing this question around with some friends for awhile. Our conclusion, so far, is that there are two theoretical ways out. The first is outright repudiation of the debt. While theoreticly possible this is politicly impossible. The second alternative is currency weakness. The problem here is going to be political as well, but internationally. One of the main benefits of a weak currency is it will allow Japan to export its way out of its problem. But that is going to be difficult to sell to its trading partners. After a couple decades of mountainous trade surpluses imagine trying to convince their trade partners that they will need to run even larger surpluses. That is a very tough message to sell. Fwiw the currency level that seems to start pulling them out appears to be between 180 and 200. Imagine what their trade surpluses would look like. To what extent does Japanese consumption increase? Do exports grow more quickly than imports? Given the current stock of capital and labor what is Japan's long-term growth rate? The current situation is pretty ugly. Consumption does not increase without large government stimulus. That means continuing large deficit financing. But with 150% debt to GDP and the deficit already at @15% this can't last much longer. So far I haven't seen a combination that doesn't break down within three years. So there is the problem.