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.

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

To: Lee who wrote (358)	7/15/1998 10:41:00 AM
From: Robert Douglas	Respond to of 3536

Lee, Thanks for the link on the Makin article. It was a good review of history and brought back some of the earliest memories I have of financial markets. I was 13 years old and remember being on vacation with my family and wondering why my father, an economics professor, was so interested in this Bretton Woods thing. I agree with Makin that the pressing problem in Asia will be one of stimulating demand, although I take issue with his contention that this is a deflation problem. Merrill Lynch's excellent publication, "Currency & Bond Market Trends" ( ml.com ) , forecasts higher inflation in 1998 for each of the following countries: Singapore, Malaysia, Thailand, Indonesia, Taiwan, Korea, and the Philippines. Their forecast for inflation in Hong Kong and Japan is for lower inflation in 1998 but still not deflation. Beware when we economists annualize rates of growth! Inflation is the natural result of the currency declines that most of these countries have experienced. The IMF usually makes these countries submit to drastic measures of austerity in order to combat this inflation. This is where the demand problem arises. Several countries have embarked on programs of stimulus, which is precisely the course they should take. The "Far Eastern Economic Review", July 2nd edition, reported that China "recently outlined a three-year, $750 billion plan to build roads, bridges and irrigation schemes". Whether you think that this stimulus will work or not is a judgment call. I am still undecided, as it is early in the game. Lee, you wrote: This prompts the question, how much could the Fed tighten without a collapse of the US economy? This is precisely the question that I believe will determine what to invest in during the next few years. What we need to find out is how sensitive the US economy is to increases in short term interest rates in today's world, which is vastly different from any we have known. I myself, would answer it by saying that it all depends on how the financial markets respond rather than how consumers will respond with their buying habits. (The traditional way of analyzing monetary changes) The bond market could respond to Fed tightening by actually rising! (lower rates) This is what has happened in the UK recently and is a good possibility here. The stock market may be quite resilient as well, given the massive inflows of money. If this is the case then the Federal Reserve may have no choice but to be quite aggressive in their tightening should the need arise. I would love to hear other's thoughts on this important question. Robert.

To: Lee who wrote (358)	7/15/1998 11:26:00 AM
From: Chip McVickar	Read Replies (1) \| Respond to of 3536

Lee and other readers, Excellant Link....read a few of Makin's papers. One of the most fascinating aspects to the current developments in international monetary policies....is the sheer number of "large events" occurring together. It's close to a whole restructuring of the entire system. Completly new charts are needed to map these underwater currents. ~ In 6 months the Bundesbank will essentially cease to exist. ~ In its place, a loose confederation of blingual politicians with an untested currency. ~ Russia is struggling with regulation of its' "Free Get Rich Party". ~ China has out grown its old monetary and economic system. ~ Japan faces its' tribal economic system with passivity. ~ Asia drops into a deflationary binge that may last for 10 years. ~ USA encounters the best of all economic worlds which will last forever. Have I forgotten anything..? Makin askes 2 questions that can also be applied to the whole international monitary system....1) "Will it be inflationary pressures or a sharp end to capital formation" that brings down the US market..? 2) "Is it currency or a break down of economic fundamentals" that brings down Japan..? Theoritical Economists should be required in their early studies to actually create and run a small business. Ever if it is making Salsa or a new tool. 80% of human economic activity worldwide is at this level. Simple exchange of goods. Most of the policies in place today benefit multi-national corporations and the various types financial communitties. Most of the wealth today has been created from imagination and printed paper...now also "electronic bytes"...with the connected and implied promise to make good on delivery. The biggest problem is that it is not possible to match fair payment for all the currency out there rumbling around the world. I realize this is simplistic but it serves the point to be made...when monetary policies are created, regulated and the resulting wealth is narrowly held by these same players....that system will reflect the imbalances of those players. General populations understand this and eventually turn against monopolies, just on their fundamental needs...this can be seen again and again, throughout history. Japan and Russia are the latest examples. I don't believe the international monitary systems in place today will be around in another 25 years. There basis is inherently unsound and built on sand. What will replace them is not yet clear. Japan has an inherantly sound economy based on a culture of literacy, creative energy and hard working people. The self serving policies of the ruling powers reflect their interests...not the nations working people. The problems in Japan are a result of these imbalances. I suspect Makin would agree that it is misfunctioning monitary system not a fundamental economic problem that Japan's is facing. Makin's two earlier questions are a vessel that essential carries the seed of the worlds evolving monitary complications. It is very possible that the monetary policies that have run the world since 1971 and in some respects since 1945 are coming to a distinct conclusion. The duration of this process for resloution cannot be known, but I believe not longer then the life span of the world wide "Baby Boomer Generations". But the next generation of monitary polices will have to have some fixed basis of value....floated rates cannot be sustained. What replaces the current system is what interests me. Will it be precious metals..? Currency Boards..? Basket of commodittees..? Perhaps something or some combination that has not been articulated..? Any Ideas, Chip