Silicon Investor (SI) -- The First Internet Community

STOCKTALK

We've detected that you're using an ad content blocking browser plug-in or feature. Ads provide a critical source of revenue to the continued operation of Silicon Investor. We ask that you disable ad blocking while on Silicon Investor in the best interests of our community. If you are not using an ad blocker but are still receiving this message, make sure your browser's tracking protection is set to the 'standard' level.

Gold/Mining/Energy : Gold Price Monitor -- Ignore unavailable to you. Want to Upgrade?

To: John Soileau who wrote (57699)	8/30/2000 2:14:34 PM
From: Hawkmoon	Read Replies (1) \| Respond to of 116764

Yeah but what happens when there is a change in investment flows arising from geopolitical developments? I think the point you're missing is that the trade deficit can become VERY "relevant" to the nation's financial health, VERY quickly. A massive and sudden repatriation of greenbacks (or even the threat of one) can certainly serve as a weapon for nations holding the ever-increasing stack of overseas dollars, and i think it's reasonable to be concerned about this vulnerability. You appear to dismiss it out of hand. Absolutely not.. In fact, this is one the few worries that I frequently discuss with regard to the "case for gold". Let's face some facts here... We saw with the Asian Contagion that these "asian tigers" were made of paper mache and needed to DRASTICALLY restructure their financial sectors in order to restore investor confidence. There are many cases where this is occurring, such as in Thailand and Korea, and to a slower extent, even in Japan. What the bursting of the Asian bubble equated to was a terrible example of just what you are allegding against the US. But that Asian and European money found its haven here in the US treasuries market and safety of the dollar (what did gold do after the Fed lowered rates and injected liquidity?). Why? Because the US market, no matter how overvalued we are with regard to the markets and currencies of competing markets, is a much safer haven with much greater liquidity. When our stock market corrects or crashes, there is sufficient liquidity that people can bail and go into US treasuries. It certainly didn't flee to the Nikkei or European markets in April The US market is LEADING the world at this moment, AND WILL CONTINUE TO LEAD until investors discover that our competitors are finally getting their act together and able to generate returns on capital that rival the US. With regard to interest rates, the Fed has been raising rates, NOT to support our currency, but as an economic brake that increases the cost of business and reduces profits in what they fear is an overheating economy. But we are seeing the VERY OPPOSITE with regard to European and Japanese Central Banks. The Europeans are acting on interest rates in order to support the Euro and defend the very unity of the fledgling European confederation. They know that raising rates, for them, places recessionary pressures on their already tepid economies, which will undermine the long-term economic strength of the Euro even more. The Japanese are in a classic liquidity trap where the BOJ has essentially created an financial orchard of "money trees" where financing can be had for free and depositors are indemnified/guaranteed by the "full faith and credit" of the Japanese government (read as "the average poor aging Japanese, already heavily levied Japanese taxpayer), creating a risk free environment where fiscal irresponsibility and corruption run rampant. But now the BOJ is showing its independence and has increased the cost of borrowing to .25% When they opt to finally raise rates to .50%, which they will eventually have to do in order to further squeeze non-productive businesses into consolidation or bankruptcy, it will equate to a 100% increase on the cost of capital. Thus, the BOJ is raising rates in order to force productive discipline on their economy and to overturn the decades of direct governmental subsidization and pump priming. And as the rates rise, the cost to the Japanese govt in financing that tremendous debt they have piled onto their posterity will require greater and greater tax levies. So I would be more worried about people pulling there money out of non-performing assets in Europe and Japan, than I would be here in the US. They need us to buy their produts since the ugly alternative is massive unemployment and political turmoil that can quickly turn very violent. It is always possible that the Chinese or Japanese could pull their money out of the US (as the Japanese were doing during the advent of the Euro earlier this year). But then they must ask themselves whether it is worth the consequences they will suffer from not having any realistic alternative other than gold. There is a quid pro quo in having a trade deficit. We may be dependent on them to buy our corporate and private debt, but they are just as dependent on our markets for selling their goods and keeping their workforce content and happy. And with those dollars they have an incentive to remain in our liquid financial markets and buy dollar denominated assets. Regards, Ron