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.

Gold/Mining/Energy : Gold Price Monitor -- Ignore unavailable to you. Want to Upgrade?

To: Henry Volquardsen who wrote (13392)	6/18/1998 9:00:00 AM
From: Gabriela Neri	Read Replies (1) \| Respond to of 116858

To maintain the policy of dollar strength would be to play chicken with the Chinese, who apparently were able to get Rubin to blink first. I agree that the strong dollar would be a backdoor way for Greenspan to slow the earnings down and allow the market to potentially correct itself through a price earning adjustment. This is the only acceptable way to do this, given that an increase in rates is out of the question.But, this option of continuing to let the dollar strengthen carries with it a different risk reward calculation, thanks to the Chinese threats. A further risk of a stronger dollar is that the money flows into bonds as the currency problems exacerbate, thereby lowering rates and further stimulating our economy(an outcome which Greenspan probably doesnt want either). Seems like a rock and a hard place. In these kinds of situations, is there any doubt that the only solution will be to take the easiest way out and inflate, defer, and deny? And furthermore, if Greenspan thinks that this market can ever correct itself in any type of an orderly manner, well, then he must be smoking some real good weed. Accumulate gold.

To: Henry Volquardsen who wrote (13392)	6/18/1998 10:59:00 AM
From: Bob Tate	Respond to of 116858

By choosing an inflation option, even if they don't admit or realize they are doing so, they are only deferring the problem and making the pain worse later. It is good for POG. Let them play with inflation.

To: Henry Volquardsen who wrote (13392)	6/18/1998 11:08:00 AM
From: philv	Read Replies (1) \| Respond to of 116858

Henry: US Monetary policy is heavily influenced by political considerations. This is true for most C.B.s. The Banks bow deep to their political masters. Greenspan/Rubin/Clinton. This complicates the already murky waters. Policy action is inherently intuitive. It has often been stated they don't trust their own numbers and research. China is a major headache for US monetary policy. The Yen must not be allowed to depreciate and cause a Chinese devaluation. The Chinese, for their part, will maintain their currency for other political favours, but exact a price on the world banking system. Support the Yen. Maintain your own currency. The call whether to inflate or tighten is therefore both an external political decision as well as fundamental national policy. Reading the entrails requires great skill. On another topic, the measly 2 billion dollars injected by the US had a huge effect on Asian markets. Psychology & Markets go hand in hand. It is hard to believe that so little can cause such a huge rally. Thanks for your stimulating arguments Phil

To: Henry Volquardsen who wrote (13392)	6/18/1998 9:46:00 PM
From: ahhaha	Read Replies (3) \| Respond to of 116858

I've had close relations with several Japanese businessmen and economists since the early '80s. I reiterate, the banking system problems are not problems and they are dumber than silly in that they give those in power a convenient excuse from doing what is necessary. They have little material consequence. They only have consequence to bank equity or bank stockholders. You claim that the root cause for Asia's problems are cheap loans made by the Japanese private sector banks. You claim this "chokes" the banking system. What are you talking about? Then you say that banks won't extend loans because they have some non-performing loans. What? If I stretch my imagination I guess that I could see the banks demanding loan premium to non-credit worthy borrowers, but that represents less than .5% of corporations in Japan. I don't understand why all the world perceives Japan as being poor. If you believe that the banks are unwilling to lend, then I would submit to you that a lowering of reserve requirements and the other monetary actions I have suggested will repair balance sheets so that confidence can be restored. Japan has not enacted any fiscal reform yet. The latest package has little fiscal stimulus outside of pork barrel spending. When I say fiscal stimulus, I mean the corporate tax rate must be lowered at least down to the rate of its trading partners. Structural reform? What's that? What structure needs to be changed? I assume that you mean they need to get at least as indolent as the West. They need to change their structure so that they are equally inefficient. That's not my view. Japan wants to prop up their direct competitors. What are you talking about? Japan has a global inflation policy option? What are you talking about? You believe they should let their currencies drop to the point where their excess assets are attractive to foreigners. This is incoherent and your claim that it would repair something is completely wrong. What that would do is cause our current account deficit to explode and cause every union in the country to go out on strike when they should be giving concessions (They always do the exact opposite of what is in their interest). It would send Japan into deflationary depression and pull the rest of Asia with it. Why else do you think the Treasury interfered in the market and why do you think Clinton is going to China while Summers goes to Japan? They are trying to prevent the very thing you recommend. Money doesn't flow towards such countries under that environment, the assets purchased are American dollars by those fleeing the turmoil. Don't you remember last December? A strengthening dollar doesn't slow down our growth. Our growth is accelerating because the world's demand for goods has to be satisfied by some supplier. If turmoil in Japan drives activity away from them even though their manufacturing costs fall with a falling yen, it will surely come here. Of course, that encourages unions to go out on strike, so maybe Germany would get the a lot of the extra action. A policy shift on the FED's part leaning against ease in conjunction with a slowly rising yen would slow our portion of expenditures for Asian made goods more than it would slow the brunt of spending Americans do. It is the high demand for inexpensive Asian goods that has enabled our economy from getting the goods from the alternative more expensive and poorer quality American made equivalents. If we bought domestically, everything would be rising in price. The FED firmness would cause the ten to firm without the BOJ needing to do anything, but that effect wouldn't last. I have recommended that Japan pursues a unilateral monetary approach and the Treasury stays out of the Forex. The FED should also pursue a unilateral strategy that happens to be synergistic in that it helps Japan and nips in the bud the growing propensity to inflate here.