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

To: see clearly now who wrote (554)	9/3/1998 11:41:00 AM
From: Chip McVickar	Read Replies (1) \| Respond to of 3536

Arnold, I am in complete agreement with you... The spector of debt leverage throughout the world [at every level] is an extraordinary accomplishment. It has increased significantly the wealth and standards of living for much of the technologically advanced countries and has fostered emerging countries by broadened their capital base. However, it has also created an unstable international financial system that creates volitility and requires a political willingness to participate in balancing this volitility. The G-7 have been willing to do just that, adjust economies and balance of payments. But, with the increased wealth and success of free-market players [hedge funds] the balance has been altered to a FAR GREATER DEGREE THEN EVER BEFORE. The next question is wheither the unwinding of this debt leverage can be accomplished without imploding the "floating rate system". Greenspan is already on record as saying the 'achiellis heel of our modern financial system maybe the volitility of cross-boarder short-term markets'. I am beginning to think that Greenspan and his counter parts cannot stop the systemic imbalances of debt to GDP, social programs and sustain the economic growth required to fund these debts and also defend the "floating currency agreements". I do believe that Henry is correct in his assesment in post-551 #reply-5661573 The US will weather these problems far better then any other economic and political structure. If we have a "money meltdown" the consiquences will most likely be a short-term confussion and another Brenton Woods conference that will within 3-6 months establish new currency agreements. I am not a gold bug or hard currency advocate, but I believe some method of regulatory board must be developed to counter the free amrket players and eventually create a more sophisticated system of currency balances. I do not believe there will be anything more then a protracted and serious recession ending with a continued and prolonged cycle of growth. Most likely there will not be a depression in the western world. However, Japan find it unavoidable unless they reach agreements shortly. Chip

To: see clearly now who wrote (554)	9/3/1998 12:42:00 PM
From: Alias Shrugged	Read Replies (1) \| Respond to of 3536

Henry - >>>>How does this translate to currencies? As I have posted before I am not a gold bug. I believe a currency is backed by the productive power and tax generating capacity of the economy. In addition the currency's value vis a vis other currencies is a function of investors interest in holding investments in those assets. As significant portions of the Asian asset base prove to have been misguided investments and are written off the market is reassessing the value of the productive power of those currencies. Since the US is unlikely to be writing off assets to anywhere near the same degree the dollar is likely to remain better supported.<<<< I agree with your model regarding what backs a currency and what drives the value determination process, but I think the US will write off an horrendous amount of assets, but they will be tied to financial activity instead of the infrastructure/chip plant type of investments. I guess this ties in with your view, maybe, Arnold. The dollar may not weaken to extreme levels, only because every (most?) nation's productive power will be weakened. The US debt can be a huge swing if/when we move into recession. Lower revenues can easily create a $200 to $300 billion deficit. Debt write-offs will lessen liquidity in the bond market, raising rates. Higher rates will increase the deficit by ?? $50 to $70 billion per 1% increase?? Mike