financy

All posts tagged financy

————– Original message ———————-
From: "noisewar"
>
> Dear Prof. Chen and co.,
>
> I have been a longtime reader of your site, and it has been the greatest
> influence on my interest in macroeconomics. Your analysis is exceptional,
> and very entertaining, timely, and readable.
>
> I had a question about your views of future Japanese policies. Since it is
> of the website's opinion that the propping of the high Dollar comes from a
> collaborative effort, do you think that after their recession, the
> Japanese are still as eager to depreciate the yen? In other words, is the
> U.S. in danger of being at the mercy of a new Japan switching from exports
> to services, or will the old relationship resume? Or perhaps could China
> take over that role? Who is going to prop the dollar now?
>
> Thanks you sirs, and I commend you again on an impressive site!
>

Dear Noisewar:

Sorry to be late for the reply. I must confess that I am a lazy viewer of
e-mails. As for Japan, yes, Japan has no choice but to prop up the dollar. As has
been said in article 1 and many other places, the first phase of propping up
dollar has been done with Japan's super low interest rate that has started in 1995;
it ushered in the now infamous yen carry trades and pushed the dollar high
until 1998.

In the dollar debacle of 2003 to 2004, yen carry trade played not much
role since FED has lowered interest rates to around 1% (Japan was 0% at that
time), so Japanese government spent 400 billion dollars to prop up dollar. After
that phase, it has been the turn of FED to prop up dollar by raising interest
rate and reinduced yen carry trades. The danger of constantly propping up dollar
is now vividly shown as yen carry trade unwound, and the global stock markets
were hit one by one in a chain reaction.

Japan is the closest ally of USA, and cannot afford to see USA goes down the drain. The situation of dollar is now very touchy. If FED wants to lower the interest rate from whatever reason, it must ask Japan to prepare for another dollar buying frenzy, otherwise dollar will suffer a total collapse and the current globalization scheme will come to its end. I must remind you that my view of the globalization is totally different from tranditional economic theory. Actually I do not care very much about the modern economics because I think it only applies to an isolated economic entity and worked well in pre-globalization era, but has
failed miserably since globalization took hold.

With best regard.

Chih Kwan