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

To: Lee who wrote (6470)	9/17/1998 11:40:00 PM
From: Derrick P.	Respond to of 9980

Lee, Excellent article you found. This makes more sense than almost anything else I have read on the subject. 'The Benefits of Devaluation in a Deflationary World' By John H. Makin Here is the direct link: aei.org Basically he says that allowing countries to devalue, or break pegged currencies, will help the economy become more competitive. Then reflate by printing money to spur domestic demand/consumption, not raise local interest rates. The problem here is that with devaluation and reflation, foreign debt payments in US$ become much more expensive. They cannot make the debt payments and the companies/countries become bankrupt and collapse. This is why the IMF is trying to keep interest rates high to prevent further devaluation and allow debt payment. This from Worswick's - Soros article: house.gov The IMF imposed tough conditions on the country concerned but it did not impose any penalties on the lenders. This asymmetry in the treatment of lenders and borrowers is a major source of instability in the global capitalist system and it needs to be corrected. It has to be a focal point in the soul searching that the IMF must undergo, but I am glad to say that the IMF is learning fast. In its $2.2 billion program in Ukraine, it is imposing a new condition: 80% of Ukraine's treasury bills have to be "voluntarily" rescheduled into longer-term, lower yielding instruments before the program can go forward. This is a long way from the Mexican bailout of 1995 where the holders of Mexican treasury bills came out whole. I do believe that if the lenders would 'reschedule into longer-term, lower yielding instruments' and/or in some other ways take some losses, that this solution would work. Since the lenders are equally as 'responsible' for the over capacity it would seem only right for them to 'suffer' some of the loss along with the debtors. This solution should allow the economies to get out from under their huge debt burden, putting an end to the deflationary spiral, and create a new beginning for many of these developing economies. In summary they need to allow further devaluation, lower interest rates, reflate the currencies, and reschedule debt for longer term and lower rates. Reflation would generate much needed domestic demand. I believe that even the lenders would benefit; as they would at least get some repayment. Now how long do you think it will take for the govs. to figure this out? I'm not sure that the IMF would even be necessary, but I guess if they want to bail these idiots out that's their business. It sure would make the lenders think twice about who they make loans to, self regulating. Best Regards, Derrick