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: russwinter who wrote (54809)	2/27/2006 1:11:15 PM
From: NOW	Read Replies (1) \| Respond to of 110194

-- Japanese Prime Minister Junichiro Koizumi on Monday contradicted his economy minister's assertion that the country has overcome deflation -- a key issue as the central bank suggests it will soon end its super-easy monetary policy.

To: russwinter who wrote (54809)	2/27/2006 1:48:47 PM
From: Ramsey Su	Read Replies (2) \| Respond to of 110194

It is interesting that we focused so much on this yuan manipulation. That reminded me of the story of a boxer (I think it was Archie Moore) who killed an opponent in the ring. Appearing in court, the judge asked the boxer if he had intended to harm his opponent. The boxer's reply - That is my job. (you boxing fans feel free to correct my version of this story) Back to FCBs and finance ministers, is there any question that the intent is to manipulate whatever they can manipulate to their advantage? Isn't that what we do also? Pertaining to the yuan, it is obvious that our politicians got yen and yuan mixed up. Yen had been kept down via a zero interest rate policy. US trade imbalance with Japan is far easier to fix because the economies are much closer and Japanese consumers can easily afford US made products while the Chinese are still far far behind. Yet, we have not heard a pip squeak about yen manipulation from Snow or Schumer. Actually, I doubt if Schumer knows the difference between yuan and yen. In either case, we can bitch and moan about this manipulation all we want but in the end, if we have no manufacturing left, we are setting the foundation of higher and higher trade deficits, not lower.

To: russwinter who wrote (54809)	2/27/2006 3:03:44 PM
From: bond_bubble	Read Replies (1) \| Respond to of 110194

Russ, I thought it does NOT matter if Japan has trade deficit with US or not. Suppose, Japan had increasing trade deficit with Saudis, are you saying that Japan pays the Saudi's in Yen? I thought Japan takes the money from US surplus (in USD), and possibly from tade surplus in Europe (again possibly in USD) and gives those USDs to Saudis. If this is the case, it does NOT matter, with whom, Japan has trade deficit as long as it has net trade deficit. In other words, all the USDs Japan has earned from trade surplus with as many countries as possible, is being given to countries that have trade deficit with Japan. Isnt this the correct money flow? In other words, as Japan has net trade deficit (actually current account is what matters), Japan has to pick some USD savings (from the past) and give it to Saudis et all to cover the trade deficit (unless Saudis are willing to take as much yen as Japan can print). Also, just a curious thought: Suppose, Japan buys lot of US Bonds based on leverage (the collateral for leverage being previously purchased US Bonds), Japan's net USD reserve would still be the same (800 Billion) - but it can convert these leveraged US Bonds into yen circulation in Japan. As UncleBigs is referring to printing Yen to buy USD, is this the mechanism Japan is following to print yen in quantitative easing - the printed yen being backed by leveraged US Bond holding? If that is the case (I've never seen any article listing this fact) - the unwinding should have the multiplier effect in loss. In other words, the crash has to happen sharply and quickly!! All those guys who borrowed in yen for carry trade in US Bonds should have followed the below mechanism: Approach BoJ for Yen credit, get the Yen credit, then give those Yen credit to BoJ and ask for equivalent USD. Japan is now having trade deficit (and not current account deficit) - so Japan might not be able to give so much USD to these carry-traders just from current account surplus. Hence, Japan must borrow USD based on the collateral it has in US Bond holdings!! This borrowing will hold the net reserve at 800B (assuming all are in USD) however, this leveraged borrowing could hold the Yen at fixed rate with USD (thus helping exports). So, all this net trade deficit for Japan is implying that Japan should be getting into massive leveraging on it US Bond holdings....If so, this will be scary in the downtime....If USD bond falls 10% and the leverage is 7 times, Japan could take 70% hit in their reserves!!! Actually, Japan could owe if US bonds fall 20%!!! More than currency fluctuation, it is the interest rate (bond rate) fluctuation that can do most damage!! [if yen appreciates 20%, the reserve loss is 20% only]. Also, net (sum of) trade surplus of all of the countries is not even close to 800B (china's net trade surplus for 05 is around 100B, for Japan it is even smaller, Opec it is around 200-250B) - I dont think this is even true of net current account surplus of all the countries (or could this be a wrong assumption?). If so, the 800B deficit for US is being paid through leverage!!! i.e carry traders are leveraging based on Dollar reserves (in turn printing lot of money in yen etc). Lot of people/articles are saying, Asia is circulating trade surplus into US. The trade surplus figures indicate this is not true. Even if China is exporting 250B to US, China is importing $150B+ - for which it pays in the USD - not in yuan I guess. It should therefore mean that Asians are keeping their trade surplus in USD and printing local currency in leveraged manner and buying US bonds in a leveraged manner as well. Could this be possible?