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.

Strategies & Market Trends : The Epic American Credit and Bond Bubble Laboratory -- Ignore unavailable to you. Want to Upgrade?

To: RealMuLan who wrote (20347)	10/20/2004 1:37:23 PM
From: RealMuLan	Read Replies (1) \| Respond to of 110194

ADJUST EXCHANGE RATES Friction on Asia's flywheel By IFZAL ALI Special to The Japan Times MANILA -- The economies of developing Asia are expected to grow 7 percent this year, equaling their performance of 2000, which saw the fastest growth since the Asian financial crisis (1997-98). Growth has been strong in all regions, particularly in East and Southeast Asia. Is this pace sustainable? Asian growth has been driven by exports to industrial countries, growing intraregional trade and increasing consumer demand. But brakes are pressing against each of these three drivers. At the global, regional and domestic levels, emerging risks are likely to become more serious over the next two years, posing a danger to developing-Asia's economic dynamism. The era of high growth rates in gross domestic product, low interest and inflation rates, and strictly managed exchange rates could be ending. The first risk stems from key macro-economic imbalances, particularly the unresolved budget and current account deficits in the United States. The persistence of these deficits could trigger sharp increases in interest rates and a considerable depreciation of the U.S. dollar. As a result, growth in industrial countries could slow significantly, leading to a drop in exports from Asian economies. Moreover, interest rates in developing Asia would respond to short-term U.S. interest-rate changes in a sharply positive manner. Rising rates would hurt domestic demand across the region. The second risk lies in China. In the past two years, China has emerged as a major engine of intraregional trade. Developing Asia's exports to China have soared at an average annual rate of 30 percent. Economies in East and Southeast Asia have been the main beneficiaries. A pronounced slowdown in China would affect each country differently depending on the nature of the slowdown and its trade relationship with China. If efforts to halve growth in fixed-asset investment were to slow China's growth rate by two percentage points, GDP growth rates in developing Asian economies would fall by 0.2-0.5 percentage point. Hong Kong's GDP would decline by about one percentage point. Combine softer growth in China with a simultaneous two-percentage-point slowdown in the U.S. and a one-percentage point decline in Japan, and developing Asian economies, excluding Hong Kong, could see growth drop 0.5-1.0 point. These possible outcomes highlight the need in many developing Asian countries to consider policies that expand the role of consumer demand to sustain growth. The rising profile of consumer demand in most Asian countries has been supported by expansionary fiscal policies, a low interest-rate environment and accommodative monetary policies. But danger signs are appearing. In the past two years, a sharp increase in household debt and a consumer-debt crisis in South Korea have eroded consumer confidence significantly. In 2004, the Bank of Thailand tightened credit-card regulations to preclude a Korea-style crisis. Consumer demand in developing Asia remains vulnerable to higher interest rates. The continuation of macroeconomic imbalances in the U.S., the likelihood of much higher U.S. interest rates and the response of local interest rates in Asia require close attention. Inflationary pressures aggravated by the spike in oil prices have also been felt in the first three quarters of 2004, with central banks tightening monetary policy. Imaginative and bold policy responses will be needed to maintain growth amid a pickup in inflation, weaker external trade prospects and the need for some tightening of macro-economic policies. At the macro level, consider the possibility of action in three areas: fiscal, monetary and exchange-rate policy. Given the burgeoning fiscal deficits in many Asian countries, expansionary fiscal policy is not feasible. Meanwhile, growing inflationary pressures preclude further accommodation in monetary policy. In many economies, though, exchange-rate policy is ripe for change. The decision by policymakers in developing Asia to restrict exchange-rate movements to zero or within a narrow range has limited their access to macro-economic instruments. Amid the rapid growth in international reserves, this policy could lead to asset-price bubbles and abruptly rising interest rates. In addition, the balance sheets of central banks carry low-yield U.S. treasuries as well as high-yield domestic debt sold to the public, resulting in significant financial costs. A sharp depreciation of the U.S. dollar would magnify losses. Developing Asian governments hold about $1.5 trillion in international reserves. These need to be put to better use. More flexible exchange rates would insulate the economies of developing Asia from the effects of imported inflation due to factors such as higher oil prices, dampen increases in local interest rates and contribute to alleviating global macroeconomic imbalances. Companies in developing Asia should assure competitiveness through productivity gains and innovation. Policymakers must consider new exchange-rate policies that will maintain Asia's dynamism. Ifzal Ali is chief economist at the Manila-based Asian Development Bank. The Japan Times: Oct. 20, 2004 (C) All rights reserved japantimes.co.jp

To: RealMuLan who wrote (20347)	10/20/2004 1:59:20 PM
From: russwinter	Read Replies (1) \| Respond to of 110194

<I think the US will not crack up in a boom> I need to make sure you understand clearly what Mises means by "crack up boom", it's not "the US will crack up in a boom", it's altogether different. It's a somewhat confusing term, but it's Von Mises, and I don't care to invent a clearer one. In a crack up boom, currencies loose a great deal of value, in a massive confidence loss. The USD is the prime candidate, because I believe the Asians will tire of bending their rears over to regularly receive US pelvic thrusts via payment (for things we don't especially need) in a currency (Old Maid Cards)() that looks like this (now at 86). futures.tradingcharts.com Perhaps I could refer you to a pornographic site to further illustrate this concept, but I'm sure you get the picture. Or they may be diplomatic about their reamings, and "ask for a higher rate" as compensation? Or they if they choose to sink with the USD by pegging and intervention, then they will go down with the Titanic as well. I now see signs (posted earlier) the rats are running around on deck, we will see. I believe we are at the cusp of a major currency crisis although last gasp MoP tricks can't be totally ruled as as ineffective. Message 20664414 () Taking license with some hyperbole, I would characterize the world economic system currently as the US paying Old Maid Cards in exchange for Asian junk and future garage sale items. This is called "economic activity" by many, I call it "maladjusted activity".

To: RealMuLan who wrote (20347)	10/20/2004 2:27:31 PM
From: que seria	Respond to of 110194

Sad but very possibly true about the US electorate. I think the US will not crack up in a boom, but will be sinking slowly, maybe in a course of 20-50 years from now, and the US system inherently would not be able to deal with the sinking effectively because most voters like to be lied upon<g> so those who speak the truth would not get elected. Surely true so far. Once we might have said that pain would yield some clarity about sound options, and thus correction of policies. Now the ignorance of economics (worldwide) among voters and their elected or non-elected rulers is so great we'll have to re-learn over a couple of generations. We have a long way to go when the framework for discussion over the last 40 years has been what gov't can/should/must do to create wealth, as though gov't is a producer rather than a taker and a rule-setter. Even if the U.S. were to return to sound economics, the fact that China and maybe India are awakening from collectivist torpor means that our people now compete on a much more level playing field with another few hundred million workers (level for Chinese and Indians, that is, even though most U.S. citizens don't see it that way). That is a prescription for lowered U.S. living standards (in a relative if not absolute sense), absent great technological advances in the U.S.