|
PureBytes Links
Trading Reference Links
|
>
> Your rosey little scenario doesn't put MY mind at ease. There are too
> many things that can happen to upset the apple-cart. One thing, for
> example involves the value of the U. S. Dollar. You correctly point out
> that Japanese exports would be hurt if the dollar's value decreased;
> unfortunately for the Japanese, they don't control its value. Further,
> if the dollar's value fell enough, Japanese banks would be forced to
> sell something(U. S bonds?) because they would not be able to service
> their debt. Their business slowdown, as a result of the dollar's decline
> would result in even more loan defaults. Let me further assure you that
> if selling U. S government securities would save a total banking
> collapse from occuring, they would do it in a heartbeat. Worrying about
> their precious exports would become a secondary item.
>
Pete, the valid question isn't whether the dollar will fall. It undoubtedly
will someday. The important question is WHY it will fall. To know why, you
only have to look at why the dollar is currently increasing in value. The
dollar is currently going up because investors (both foreign and
American)perceive virtually all of Asia to be a bad investment environment
right now. They are therefore shifting their investment money to the best
looking investment environment- the US. In order to buy American debt and
equity instruments, they must first convert their money into dollars. This
extra demand for dollars bids up the price (and therefore the value) of each
dollar relative to the currency it is being exchanged for.
What does this have to do with the dollar falling? It's very simple. When
the economies of Asia (especially Japan) turn back up, these investors will
begin to sell their dollar-denominated investments and buy yen-denominated
investments. The crucial point here is that Japan must heal itself BEFORE
this will happen. In other words, the dollar won't fall WHILE Japan is
still in recession, it will only fall AFTER Japan is out of recession. This
increase in economic activity will obviously alleviate their financial woes,
such as "servicing their debt," as you mentioned.
Now granted, this mainly has to do with US debt held by private foreign
investors, not foreign central banks. Can I tell you with certainty that
the Bank of Japan won't sell their US Treasury holdings, no? They've made
plenty of dumb decisions before, but I just don't think they're stupid
enough to sell US bonds in such large quantities that it hurts their
exports, the only shining star in their economy right now. You don't
strengthen your right arm by weakening your left.
> What could cause the dollar to decline? You have to know what gives it
> its value before you can answer. Its value is determined SOLELY by our
> government's ability to collect taxes - period!
Actually, not true. The value of a country's federally issued debt
instruments (bonds) are determined by a country's ability to collect taxes,
and the environment it creates to maintain/increase its tax base. The
greater the value, the greater the demand for those bonds (relative to other
similar investments), and therefore the lower the interest rate paid.
The value of a country's currency is based on several things, but the demand
for that country's debt and equity investment vehicles is one of the biggest
factors. As stated above, the greater the demand for a country's debt
(bonds) the greater the demand for that country's currency, and therefore
the value (price) of that currency goes up. This is why the dollar won't
fall versus the yen until the investment environment in Japan improves.
>If I were the Japanese
> right now I'd be worried. We've had a full blown tax revolt in this
> country for years and the spectre of government mainframe computers
> going bonkers because of the Y2K problem is more than a little
> disconcerting.
I won't get into the Y2K debate, but there is one thing that is amazing
about the Japanese people. Despite the economic problems they've had for
eight years now, they keep re-electing the LDP back into office. As
Americans, we have trouble understanding why the Japanese government hasn't
done anything meaningful to solve their problems. The painfully simple
answer is, the Japanese voters haven't given them a reason to yet!
> You say the stock market will continue its phenomenal run for at least
> the next ten years. I wish I had your crystal ball. It would sure make
> trading a lot easier.
>
I posted a message to the Omega list a while back explaining why the US
stock market will continue to rise for at least ten more years. As soon as
I can find it, I'll post it to this list.
Bruce
|