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Politics : Ask Michael Burke -- Ignore unavailable to you. Want to Upgrade?

To: Knighty Tin who wrote (27364)	4/12/1998 12:42:00 PM
From: HB	Respond to of 132070

One read on the dollar sale might be Japan trying to keep a lid on capital flight by quashing the perception that the yen will keep sinking vs. the dollar. If you take it this way, you might almost take a contrarian view: Japanese are seriously concerned with their savers fleeing to US bonds and equities. Remember the dip in rates during the height of the Asian crisis last fall? Hey, I don't know what's going to happen for sure, but I would not rule out falling US interest rates due to private Japanese bond buying, and US equities going hog-wild on Japanese money. But, probably the fed and the Japanese authorities are not keen on this; probably they will try to counteract it. Been thinking some more about your "Greenspan responsible for financial inflation/ asset bubble" thesis. I am liking it somewhat better. You can't neglect money demand, however, and think only about money supply. Thing is, some of the factors that have shifted the demand curve for $ (increased demand at a given interest rate) include the Asian economic collapse, and the stock market bull run itself. (I remember James Tobin telling us in my graduate macro class that two cities had very large percentages (I forget exactly how much, and which one had more) of the total US money supply: New York and Miami). Point being that money demand depends positively not only on GNP, but also on wealth (volume of financial transactions). Which is why, although much of the wealth itself would be wiped out in a financial crash, money demand would still drop as a consequence of a crash. (But the contractionary consequences of the reduction in spending would probably outweigh the expansionary impact of a drop in money demand.) So, the overall deal with a crash could be sort of like loose money, tight spending. But I think it's silly to think Greenspan isn't concerned about this stuff. What really got me thinking was the discussion with a former BOJ governor, Yasushi Meno, in (thanks to John Hunt for the link:) stocksite.com He basically says "I did exactly what Mike Burke is accusing Alan Greenspan of doing now, and it was a disaster". (Not in so many words :-( -g-) The kicker is where he says they didn't realize what they were doing was a problem because it wasn't causing inflation. Deja vu all over again? On the other hand, in Japan this was combined with serious distortions of resource allocation due to non-market processes like bank rationing of cheap credit, MITI intervention in capital allocation, and a huge bias towards producing exportables.... Arguably the US has no such fundamental problems right now, indeed is the seat from which capital will expand its domination over new areas of Eastern Europe, Russia, now perhaps even expanding its role in Asia, not to mention your genetic code, your leisure time, your doctor's office, your kid's schools, your thoughts... -g- Don't you want to own a piece of that? While we're at it, more cheery stuff on Japan (also from John Hunt on the Ask Mohan (hey, it's zen...) thread: economist.com Guess I'm seated firmly on the fence... still slightly net long, but holding lots of cash, and adding marginally to BEARX. Though I think I will hold any more additions there until we see if Japanese equity investment in the US is going to be the Next Wave. Cheers, HB