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Pastimes : A Jackass, his PAL(indrome), and GOLD -- Ignore unavailable to you. Want to Upgrade?

To: Jim Willie CB who wrote (607)	2/5/2003 10:54:52 AM
From: Wyätt Gwyön	Read Replies (1) \| Respond to of 1210

well, i would say it is prima facie obvious that our implosion will not be like Japan's. they have a structural current account surplus; we, a structural current account deficit. their problem is the need to constantly recycle their surplus so that their currency does not appreciate, which would cause a depression in Japan as their products are priced out of the market. their massive manufacturing overcapacity, which would not service debt levels, could make today's banking crisis look like a cakewalk. Japan desperately wants to avoid this so they do everything possible to prop up the dollar. their marketable Treasury holdings, for example, are some $362 billion and account for about 11% of marketable T's--that is almost four times the level of the next most significant holder (China, at 3%). you can see Japan's solution to their surplus problem is to prop up the dollar. it has worked for decades. i think the solution will stop working not because Japan will stop recycling, but because nobody will believe the answer (strong dollar) anymore. it is when the dollar depreciates despite the efforts of our largest trading partners that the world economy will be cast into disarray. we will all be "without a beacon". this is a world crisis in the making, not just a local crisis like Argentina. our problem is the need to have foreigners constantly recycle their surpluses here so that our currency does not depreciate, which would cause inflation. fortunately for us, our currency is holding its own and then some against the peso and the renminbi, as Mexico and China are becoming more important trading partners. therefore, our depreciation against the Euro has not caused inflation in low level manufacturered goods. however, our depreciation vs the Euro is causing financial pain for those who recycle here. this is likely to cause them to withdraw assets from the US which will hurt our financial assets. eventually rates will head higher and this will cause a much-deserved housing-market collapse. as for his comparison to Argentina, i do not think it is that simple. there are shared elements, but we are such a vital trading partner to the rest of the world that they cannot afford for us to implode. whereas the world could afford to let Argentina implode. nevertheless, we have imbalances that must eventually be worked out. how will it happen? i don't think it will be like Japan or Argentina, except in the sense of being real UGLY.

To: Jim Willie CB who wrote (607)	2/5/2003 12:39:00 PM
From: Telemarker	Read Replies (1) \| Respond to of 1210

I don't see the Argentine outcome as a possibility. Argentina had massive foreign debts, as the U.S. does now, but Argentina's were denominated in U.S. Dollars and they did not have the right type of printing press. OTOH, I believe that the U.S. debts are predominantly U.S. Dollar denominated and can be liquidated in a manner as described by Bernanke in his infamous speech. That road may not lead to Argentina, but it still leads me to gold all the same. Disclaimer: I believed, almost up to the very end, that the Argentine treasury indeed did hold one U.S. Dollar for each Peso that it had put into circulation. Shame on me. Thanks for all of your efforts Jim Willie CB. I enjoy your work.