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Strategies & Market Trends : Asia Forum -- Ignore unavailable to you. Want to Upgrade?

To: Cynic 2005 who wrote (177)	12/26/1997 5:15:00 PM
From: Tommaso	Read Replies (1) \| Respond to of 9980

Perhaps because at one point I read a lot of Friedman I had already thought the same thing. The Japanese should and probably will expand their money supply. Some inflation would be better than what they have got. The place Friedman went very far wrong (ten years and more ago) was his failing to appreciate how fast productivity could increase. According to all his books, data, and arguments there should have been serious continuing inflation during much of the 1990s. Instead, world-wide production increased even faster than money growth and inflation receded--at least in the United States. I am quite sensitive to this because I invested according to Friedman's economics and it did not work. It was a very hard lesson to learn. I had to explain for myself why there was declining inflation. It was a vast increase in good imported from abroad and cheap services (at least some of them cheap--minimum wage) provided within the United States. Thanks very much for the stimulating link.

To: Cynic 2005 who wrote (177)	12/26/1997 5:15:00 PM
From: Jack Clarke	Read Replies (3) \| Respond to of 9980

Mohan, Sankar: I am also missing something, perhaps more basic. I keep asking this question, and if it's really stupid, tell me to go to the library and study some more basic economics. I'll understand. But I've always considered myself a three-digit IQ person, and I can't grasp the money flow big picture. I like to simplify, so here's what I come up with: The US spends more than it makes. We borrow the difference from other people, many of them Japanese and other Asian countries by selling them our bonds. They in turn save their money, but their corrupt governmental supported banking systems have cooked the books for many years of fine dining, and now the waiter has brought the check, and they can't pay it. So the IMF (including US contributions) will give the broke Asian countries money (there's that word again) to avoid their default, so they can keep buying our bonds, or lending us back the money we just lent them. Wait a minute, I'm getting dizzy. Seriously, am I thinking too simplistically about "money" when it is really electrons on computers jumping around and it only exists in a conceptual sense? Next question, if this "money" is just being printed, when will the world wake up and realize that this is not a medium which is trustworthy for their long or even short term storage? Will that ever happen? Thanks. Jack

To: Cynic 2005 who wrote (177)	12/26/1997 5:18:00 PM
From: Zeev Hed	Respond to of 9980

Mohan, I think it will take our Japanese friends another five years before they operate the money printing presses, maybe if the Nikkei breaches 10,000 they will wake up. They have a real ingrained fear of any type of inflation and are willing to risk a major deflation to avoid the former. This is one of the reasons I am bullish long term on our markets, Japan is going to let mild deflation grip their economy and that will put enough pressure on ours to prevent any major inflation here or even have a very mild defaltion here. The later case would play into my scenario of long term interest rates at 5.5 by June next year and with the Dow then in the 6000 or so, set the stage for a powerful rally into 1999. I must say the old man Friedman is as bright and precient as ever. Zeev

To: Cynic 2005 who wrote (177)	12/28/1997 5:49:00 PM
From: Rational	Read Replies (2) \| Respond to of 9980

Mohan: I find the Japanese are sandwiched. * They cannot lower the interest rate any further to boost the economy. Their lowest interest rate (at least among the G7 nations) has put a tremendous pressure on yen despite strong Japanese exports. They kept the interest rate this low to induce the American borrow/spend habit among Japanese. This has not worked. In stead, it has given a golden opportunity to international financial arbitrageurs to borrow yen and invest in other currencies, making the yen devalue automatically. * If the Japanese raise the interest rate to enhance the value of yen, the economy will nosedive from the very precarious current state. * By leaving the rate as it is, the Japanese see no improvement in their economy. The latest Japanese move to borrow to buy bank equity (preferred stock) is like forcing Japanese to buy Japanese bank stocks indirectly. I think even this has not worked, although the Nikkei rose somewhat due to short covering of bank stocks. The main problem is Japanese corporate profitability for companies that cater to the domestic economy, which stems from the Japanese habit to consume less and save more. I am not sure how the Japanese government can solve the problem. They are trying to develop the home construction industry because this is a sector that is in great demand. Sankar

To: Cynic 2005 who wrote (177)	12/31/1997 12:32:00 PM
From: HB	Respond to of 9980

There's a lot of interesting stuff in Friedman's article (the question about whose bonds the Europeans will use to do their open market operations is a good one, though I guess they'll figure it out) but IMHO he's hung up (surprise!) on monetary policy to the exclusion of fiscal policy... it shows up in his views on Japan, where a big part of the problem is clearly tight fiscal policy. I don't know the details of either Japanese fiscal or monetary policy well enough to debate with Friedman on it -g-, though; it is certainly interesting that he views their monetary policy as contractionary as well, and I don't think low japanese interest rates necessarily contradict this thesis, since they are due in part to low demand (recession) and also, Japanese financial markets are not as free as US markets... tight money could be felt through credit rationing by banks, more than through interest rates. With the yen having fallen so much, I think they would do better to emphasize liberal fiscal policy, more than liberal monetary policy. HB