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

To: Frodo Baxter who wrote (6594)	9/23/1998 9:40:00 AM
From: Worswick	Respond to of 9980

Lawrence right on! However, as I recall the Plaza accord didn't the dollar go down relative to the yen rather than up: that is checking my souvenir 1985 currency tale the dollar was at $1.91. Ref yours: "...The real culprit is James Baker and the Plaza Accord, which distorted the only market indicator (depreciating currencies relative to the greenback) that foretold the Asian model was a road to serfdom. Instead, we unleashed an unparalleled asset bubble whose shockwaves are still being felt. Stupid economic policies, opaque banking, and foolish politicians..." Yes. All the above. Both from column "A", and from column "B" It seem to me, in passing, that the elites of Asia welcomed the flood of D marks and dollars and pounds with both hands outstretched. This was manna from heaven... the go go 80's of the US transposed now until recently.... to the go go 90's in Asia. What really happened is that 90% of this money stayed with the "elites" of Asia. It is this group that is in real pain now and are calling for currency controls. Let me give you briefly a view of INDIA... and what has happened there with currency controls over the last 40 years. The elite's got richer; the poor got poorer; the middle class is squeezed to oblivion. The dynamic is more population, less service, less goods, poorer quality goods. Currency controls are the road to serfdom. Take a trip to Bombay in May, any May. If there is a road to hell it leads through Bombay on May 20th each year... with stops on the local line from Kahheri to Churchgate station. Currency controls tend to bolter the position of the elite's of these countries: they squeeze out competition: once authoritarian regimes reassert themselves you're going to have ever editor and writer in jail who has an independent opinion (even about a local company, yes!). Is this a good or prudent climate to invest in? No. Not with any other choices... or, rather, a world of choices. Bascially, the line has been drawn in the sand in Asia. We are right now,and this vedr moment witnessing a profound battle for the future. The future of Asia. The future of the world as it will be in the next twenty to thrity years. On one side are the elites of Asia....trying to hold on to what they have got and on the other side is the emergent middle class who want a part of the new world. And let me remind you that in Japan there are the same elites who created and stoked the Japanese militarists in the 1920-30's period. A very scary group. Do you remember Yukio Mishima? The writer? Go to India. See the fate of the middle class with a society saddled with a culture of currency controls and government supervision of everything. Sad. Tragic. Some of the most vibrant people I know and have ever met are Indians and they are saddled with this monster on their backs bequeated by well-meaning, intelligent, educated, liberal forefathers....all them from an elite society who knew what was BEST!!! And who are not around to see what the result of their Fabian vision was. My best to you, Clark

To: Frodo Baxter who wrote (6594)	9/23/1998 12:51:00 PM
From: Henry Volquardsen	Respond to of 9980

Lawrence, I won't give James Baker a complete free pass, after all a good argument can be made for blaming him for the '87 crash. But I think it is over estimating his importance and that of the Plaza Accord to give them primary 'credit' for creating the Asian asset bubble. Yes I agree it would be preferable to allow the markets to determine rates. But all the Plaza accord did was prick a bubble in currency values that eventually would have burst any way. If that were not the case the impact would have eventually reversed. As far as the asset bubble in Asia, I see currency values as a contributor but not the major component. Structural factors in Japan in particular were much more important. Japanese banks were aggressively lending on very thin margins. They were supporting this with phantom capital. While the rest of the world was tightening capital requirements for banks the Japanese continuously allowed their banks to operate under already loose standards. Just think of the idea of banks being allowed to use unrecognized gains on equities as capital? There is a litany of such structural distortions in banking, real estate, agricultural and trade regulations that contributed to ballooning prices in assets and over investment. And Japan was a closed system, foreigners had very little direct access so the causes were largely domestic. Currency valuations had a limited impact on Japan. Currency valuations had a bigger impact on creating asset bubbles in the emerging economies. But the reason here is that these currencies were generally pegged to the dollar. Therefore they were not real impacted directly by the Plaza accord. Henry BTW your comment Stupid economic policies, opaque banking, and foolish politicians are a fact of life. But it takes global collusion to weave gold from such flimsy threads. I have never been a big believer in conspiracy theories. I don't think these guys are capable of colluding on such a complex project. If they were they wouldn't be the foolish politicians that they are but would be conniving investment bankers instead ;)

To: Frodo Baxter who wrote (6594)	9/23/1998 3:08:00 PM
From: Robert Douglas	Read Replies (1) \| Respond to of 9980

Lawrence, you mentioned the Plaza Accord as a major culprit in the Asian crisis. The real culprit is James Baker and the Plaza Accord, which distorted the only market indicator (depreciating currencies relative to the greenback) that foretold the Asian model was a road to serfdom. Instead, we unleashed an unparalleled asset bubble whose shockwaves are still being felt. In an earlier post on another thread you had also addressed this same issue: But then the Plaza Accord was signed. Exchange rates stopped being rational. The dollar depreciated. The U.S., which was doing fine to begin with, now had an undervalued currency and entered a period of superb internal growth while retrenching a bit from international economic hegemony. The situation in Japan, however, was disastrous. The marketplace signals were all wrong, and Japan Inc. was actually rewarded for pursuing irrational, value-destroying strategies. After all, the yen was rising, wasn't it? Is it any wonder that an asset bubble developed? Please clarify the mechanism by which the Plaza Accord caused the asset bubble in Japan. Your posts suggest a role played by the rising yen. Was it anything more than a psychological validator or was there some greater cause-effect mechanism in place? Also the chronology does not seem to match your thesis. The critical phase of the Japanese stock market bubble occurred during the two years that began in Jan. of 1988. It was during this blowoff period that the Nikkei Index went from 21,000 to 39,000. However during this period, the yen actually declined versus the dollar by about a fourth. It was only after the Nikkei began its descent that the yen doubled in value. (From 160 to 80 yen/dollar) One further point which we have skirted around in our discussions on the "true" value of the yen. You say that the U.S. was doing fine with the dollar at the preposterous levels of the mid 80s. My recollection of the period was that it was a disastrous one for U.S. manufacturers. In my files on the period I have a picture of a Caterpillar worker holding a sign saying "HELP CATERPILLAR, NOT KOMATSU" Of course you know my thoughts on the subject. I believe that the dollar was almost 50% overvalued at its peak. -Robert