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To: DavesM who wrote (494)	6/13/2001 9:27:54 PM
From: Hawkmoon	Read Replies (1) \| Respond to of 1715

I believe there are two additional factors for the decrease in the value of the yen and euro. Cut me some slack Dave!!... I could have written probably 10 more paragraphs which would have included exactly the points you accurately mentioned.... <VBG> Japan's deflation is primarily demographic, imo. The older the population becomes, the less they spend and the more they save, resulting in a contracting economy. And the Japanese don't have much of a social security network. They have corporate pensions, but most of that money has shuffled into low paying JGBs and postal savings accounts drawing limited results. And the government has propped up the economy through massive deficit spending to the tune of 130% of their GDP (compared to the US national debt equating to 37% of US GDP). And with a declining tax base, they will either have to take steps to replace those domestic workers with imported foreign labor, or contract their economy to fit their available labor pool. That's 130% of the annual national revenue. And the only way they have been able to do that kind of deficit spending is because their own people have been saving like mad for their eventual retirement, calmly trusting that pension money to have the same value and buying power as it did when they put it in there. But as you realize, pretty soon that money's gonna start coming out, and they are going to be cashing in those JGBs. And once that process starts building momentum, other Japanese will see the Yen weaken (because the BOJ can't raise rates in a depressionary environment) and will likely swap that money into better safe harbors (like the US dollar or gold). And if you will note, many US brokerages are opening up Japanese branches in anticipation of this eventuality. I've heard Bill Seidman discussing the idea of a RTC for Japanese corporate debt, but that won't solve the problem of government debt. Assuming that corporate debt will increase the goverment debt by a like amount, adding on to the already serious national debt. The only Japan will be able to deal with their national debt is by monetizing it in one fell swoop through a massive devaluation of the yen. But getting to the Europeans, they have serious problems due to their inherently negative business environment. Too many regulations, excessive taxes, and a larger percentage per capita of entitlement liabilities, with any substantial restructuring still 5-10 years out, makes it a dicey place to try and make money. The fact that they are only now instituting 401K style personal retirement programs indicates that they are behind the curve with regard to their baby-boomer population. Furthermore, the whole concept of a confederation as a form of government for those diverse nations is a tenuous propositions in itself. A nation's currency reflects not only its economic health, but also the relative stability of that nation. Confederations, as we have seen with Canada and Quebec, are inherently unstable. The US was originally a confederation, but that fell apart within a few years, to be replaced by a constitution and a federal republic. But here in the US, we have a declining public national debt (not the private debt that the budget "surplus" currently adds to every year). A declining public debt market provides less liquidity for those big money players (governments) looking for safe harbors to park hundreds of billions of dollars temporarily. In fact, if the US public debt market declines more, we may see money players invested in other assets, like gold, which is not something we particularly want. Thus, that's why we can't pay off the public debt. And it explains why democrats want those surpluses to continue to go to debt "payment", because it provides them billions more in revenues they can spend, while throwing hundreds of billions in IOU treasuries into the Social Security Trust Fund, to be paid off by tax revenues 10-20 years from now. So let's make no bones about it... The SSTF surplus, funded primarily by FICA taxes, will continue to pour money into government coffers and treasury IOUs placed in the fund. The government will spend that money today, and make your kids pay it back 10 years. This money will be denied to the private markets (since we can't invest any of our FICA tax in private retirement accounts), raising the cost of capital uneccessarily for corporations and denying the public better returns for their retirement than US treasuries yield. But even with that scenario, I believe the US presents a far better economic picture than its competing 1st world economies. From my perspective, if the government wants to keep our FICA tax money, they should dedicate it to improving the national infrastructure, to include subsidies for long-term power solutions. I would love to see the US heavily subsidize nuclear power because the economic value of such a program, like the TVA and other hydro-electric projects during the '30's, would create long-term economic value for the entire nation. But lacking such an action, they should encourage private industry to build those plants, providing favorable low-interest loans to facilitate this expansion of the domestic energy infrastructure. Hawk