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Strategies & Market Trends : Currencies and the Global Capital Markets -- Ignore unavailable to you. Want to Upgrade?

To: Gersh Avery who wrote (300)	6/26/1998 11:32:00 AM
From: Henry Volquardsen	Respond to of 3536

Gersh, That is a big question and there is still a lot of behind the scenes manuevering going on. I do believe that unless the Japanese take strong action soon it is inevitable that the yen weaken further. So the question becomes wether China is serious in its threat to devalue. There have been a few analyst that have pointed out that China gains little from a devaluation. There is a possibility that China is using this as a bargaining point for other considerations. In fact they have good reasons not to devalue. My suspicion is that when all is said in done China will devalue but it will be less dramatic than people fear. The real question is what the US should do about Asian devaluations. A strong dollar is far from being a disaster for the US. Yes the Asians will get a temporary export advantage but remember that they are almost all resource poor and the raw materials they purchase are in dollars, so that impact will be temporary. And the area they will get that advantage is on goods that are labor intensive and low margin. This is not an area where the US is very competitive anyway and not a high growth area for the US. Where US growth has been strong has been in high value added services and technology. This is high margin , non labor intensive business. Currency moves will not make Asia more competitive in this area. Our biggest problem has been that with the economic difficulties Asia has they have cut back demand for these products because they are broke, not because someone else is cheaper. If a currency depreciation gets their economies moving again selling low margin goods that will enable them to buy the higher value prodcuts and services that are our strong suit. Consequently I don't think there is much we need to do. I am not afraid of a strong dollar. German prospered for decades with a very strong currency. Henry