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Strategies & Market Trends : Booms, Busts, and Recoveries -- Ignore unavailable to you. Want to Upgrade?

To: Street Hawk who wrote (862)	11/22/2000 10:23:44 AM
From: Hawkmoon	Read Replies (1) \| Respond to of 74559

You see, there is a big difference. Indeed... there is... Having a trade deficit means they are exporting more to us than are importing from us. They are taking payment in dollars and need to find a place to park that excess money. They could sell those dollars and park it in Yen, but that would increase the strength of the yen, which is not what they want to have happen if they are to break out of their financial liquidity trap and close to zero percent yields. Or they can park it in US debt securities, where they have a guaranteed buyer to the tune of $200 billion annually. The Japanese people are the true creditors. For they are the ones who have parked some $12 Trillion in cash in their bank accounts in preparation for their own retirements. They are the ones who have to pay the extra taxes to service the governmental debt (not deficit, but national debt created by that deficit). This will equate to less money that can be spent by consumers so that a robust domestic recovery can be achieved. They will continue to be reliant on exporting their way out of recession. But as the US economy slows so, potentially, will their exports to the US. And that will slow down their economy. And when retired Japanese start drawing from that pool of personal savings, the government will no longer have a cheap and ready source of depositors willing to purchase their debt. They will have to go to the foreign markets to pawn off those JGBs and then the devaluation will commence as foreigners demand a premium for buying them. The trade deficit WOULD MATTER IF, there were competing economies out there which were likely to exceed the efficiency of our own (at this time). But since there are none, and the fact that they face greater economic difficulties that we do, the US is still the safe haven for the global investor, if only in US treasuries yielding a 5% return. They probably figure that with currency devaluations in Europe and Japan occuring, or on the not too distant horizon, they can increase their yields on the arbitrage play in the FOREX markets between the dollar vs yen/euro. Regards, Ron