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

To: Jack Clarke who wrote (4690)	6/20/1998 9:43:00 AM
From: Zeev Hed	Read Replies (2) \| Respond to of 9980

Jack quite some musing for a Saturday morning. Let see, let us start with the second question first. No, I do not think we "strong armed"" them into lowering their interest rates and created the bubble economy. I am not even sure if this is indeed historically correct. They had a strong currency because of "excessive" export and large credit of foreign currencies. Switzerland had at one time negative interest rates without creating any "bubble economy". Japan's "foot print" is quite small and the booming economy of the late 80's created demand for real estate which caused banks to lend not at the typical 80% of a project but at 120% of a project (the excess money squandered away, very much like in our own S&L crisis). This, on values far in excess of what business could pay to occupy all these premises. So, no we did not create this mess (thanks G-D we create sufficient other messes). Now to the first query, why didn't they lower taxes. I have been saying since they imposed the new sales tax that this is going to bring to a calamity (In November of 1996 I had a big argument with cyberfriends on the golddigger thread just on that matter). Why did they impose this tax and why they are not stimulating their local economy? The following is a conjecture, but I think that Japan has a paranoia of foreigners and their culture, as well as a fear of being drenched in trade deficits. The way I see it, if they stimulate their economy it will drastically stimulate their imports, and the Japanese have always feared that their imports will exceed their export. Stimulating their economy would do just that and furthermore will have the possible impact of "westernizing" even further their culture. Jack, and now to the jewel of your questions, which actually says (as James Dine has for many years) that currencies that are not backed by gold will be eventually debased. Gold is a historic relic, completely inadequate to support the monetary requirements of a growing world population and growth of the world total "Gross International Product" (Shall we coin the GIP?). If the currencies of the world were to be based on gold, at any price, we will doom the world to permanent inflation relative to gold, because the rate of finding new gold is smaller than the rate of growth of world's economies. We will create a situation where an unproportional portion of our resources would go to extract gold and gold prices will reach such values that it would make it cost effective to extract it from ocean waters (that will of course be the seed of another "gold Tulip Mania", since then everyone could get as much gold as needed and the oversupply will cause debasing of Gold itself). I strongly believe that Central Bankers worldwide have finally arrived at this conclusion and are gradually executing a very long range plan of completely severing gold from the monetary system and relegate it to its rightful position as an industrial commodity with unique properties (electrical, thermal chemical etc.) that makes it very useful in many applications. Gold at $10,000/oz will no longer be usable in any of its industrial applications. But make the following assumption, assume that the world economy grows YOY 1 trillion bucks (sometime in the not too far future), if the monetary base that support this growth is backed by gold, even at just 10%, you will need to increase the gold reserves by 100 billion worth of gold (year after year) at current production rates (if memory serves about 2000 tonnes per year or about 60 Million ounces?), even if all the gold goes to support growth in the monetary base, it will have to be priced at 16,000 $/ounce. Of course, at these prices production of gold will drastically increase, so my $10,000/oz. In essence backing currencies with gold put a straight jacket on the world's economy that requires that the increase in gold production matches the increase in GIP. However, the GIP is no longer based on simple essentials like food and shelter, the GIP includes an ever larger array of new "human needs" and keeping any single commodity's production rate as the rate at which GIP has to grow will cause either stagnation or inflation (as the price of gold is forced to back new economical activities). The percentage of human activity dedicated to finding and extracting gold is and should be a declining function of time, just as all other old activities are declining as a percentage of total activity when new "human needs" are added to the GIP. Gold is out and for good (we should have listened to Moses, no praying to the Golden Calf or calamity strikes. Now how smart are we and can we replace this with a paper currency that does not undergoes periodic shake out? That is another subject. Zeev

To: Jack Clarke who wrote (4690)	6/23/1998 6:10:00 PM
From: Lee	Read Replies (2) \| Respond to of 9980

Jack, The Monday Wall Street Journal had a good explanation as to how Japan got into this mess, and why opening their economy more fully is the best way out. Basically it comes down to the pursuit of an export based economy and many of the issues we have addressed here. A free to adjust economy would not have allowed nor created the imbalances that ultimately led to what we are today experiencing. Had the bank of Japan focused on price stability the world would be different. Rather Japan's government focused on supporting an export machine, and continually choose policies to help produce this outcome. Low interest rates were one part of the puzzle. The article is more articulate. Sorry I do not have a link for it at the moment. Regards, Lee