To: Bobby Yellin who wrote (5176 ) 1/3/1998 9:29:00 PM From: Abner Hosmer Read Replies (1) | Respond to
Bobby - It seems like a strong US dollar is getting to be a real inconvenience for a lot of people. It was great when it was a magnet for Asian imports, now it's a drag for all those Asian countries that have debt denominated in US dollars. It was great for Europe as they went through a round of competitive devaluations, now it will be a drag as they try to establish the EMU as a viable currency. The Japanese have long complained about the long-term decline of the dollar vs the yen, that the US was weakening the dollar to offset their trade deficit. Now the relative strength of the dollar poses a threat to the yen and hence must be diminished, but not by too much. It appears that Japan thinks it is the exclusive domain of the US to maintain exchange-rate stability. When the dollar weakened to 110 yen last spring, Hashimoto was freaking out and would have had the Fed tighten. Now that it has been to 130 yen they would have the Fed loosen. (what I'm getting at is: do we really have the power to achieve exchange rate stability?) It's been great in attracting foreign financing of the US debt, but now it's a drag on US competitiveness in overseas markets. A cheaper dollar would ease the cost of paying the US debt. Maybe everyone figures it would just be better for the dollar to back off a bit, so the Fed will loosen and ease up on everybody. Japan has thus far provided tremendous liquidity to world capital markets, now maybe it is the US's turn to pick up the ball. Japan got caught in a great credit bubble and with their help much of Asia eventually followed. The solution seems to be that everyone will just keep opening the spigots wider and wider.
