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

To: Rmn who wrote (352)	1/2/1998 10:17:00 PM
From: Rational	Read Replies (4) \| Respond to of 9980

Ramsey, On one hand, Japanese would like the yen to depreciate so that they can continue their exports, especially after depreciation of won and other Asian currencies. On the other hand, the trade surplus is not being plowed back to the Japanese economy due to yen's depreciation. [Asians are selling in the US and buying US Treasuries and stocks!] I had made a post here stating that eventually the Asian currencies (including yen) will have to appreciate to cut the huge and ever increasing US trade deficit. My reasonings are as follows: * The dramatic decrease in the US budget deficit was possible due to large corporate profits and individual stock trading gains, dividends, etc. -- leading to greater IRS revenues. * US personal income has not risen in real terms; actually the recent income gain must be related to trading gains. I do not have facts, but am saying this because the corporate wage is not rising. * When corporate profits decline, stock prices, and dividends fall, the IRS will collect less taxes. This will raise the deficit to where it was, putting enormous pressure on politicians as the apparent American wealth and income fall. * In fact, after making that post, I heard the IMF Chief Economist (or MD) Mussa (whose work I know of) say that the IMF is working on improving the Asian currencies. * The US policy makers know very well that unless the Asian currencies (especially yen) rise, it would be nasty for the US. That is why they are working very hard to prevent a disaster in the US. Now, yen can rise if Japan wants so. Japanese will want this only if other Asian currencies appreciate. These currencies will have to be made to appreciate since smart US policy makers already know the seriousness of the problem on the US budget deficit, trade deficit, falling real wage, and wealth. How will the US policy makers help? The only way (beyond the IMF loans that are not helping much in improving the Asian currencies) is federal funding of Asian purchases of American goods, e.g., Boeing jets to Thailand. In other worlds, a part of the American wealth will have to be plowed back (not freely!) to Asia to raise their currency values and make them pay the loans more easily. How soon the above may happen? I think it is urgent. I know the US policy makers treat it urgent. But, direct funding of Asian purchases is a big political issue. It is not easy to convince Americans and Congressmen that the Asian problem will not remain isolated if the US does not act -- it is a very hard political problem; time may run out. We will know after the Congress resumes its session. Sankar