[A-List] Beware the Unwinding of the Yen Carry Trade
tboyle at rosehill.net
Mon Nov 3 10:58:06 MST 2008
In Japan in the early 1990s, neither individual households nor
companies *needed* any loan, or *wanted* any loan. What's the use of
a bank, in such circumstances? People and companies generally had
sufficient current net cash flow to carry on, as long as policymakers
kept the monopolies somewhat in equilibrium-- the perennial task of
the Japanese government.
The Japanese economy was not so irrational that it had many companies
systemically in the red. Other than the finance and property
bubbles, the rest of the economy did not need bank loans to meet
current cash deficits. Japan's dominant corporations furthermore,
didn't need banks for long-term investments. They had plenty of
financial resources to finance needed plant and equipment. They had
more capital than the banks! This is generally true of today's
dominant transnationals as well.
Of course, in those circumstances, who needs capital, or
capitalism? Capitalism is only relevant when there is excess
returns to capital-- it cannot exist in a steady state economy,
because supplies of everything have developed to match the
demands...... Accordingly, liquidity throughout the economy cannot
be increased by reducing interest rates. In Japan they had zero
interest rates (negative interest rates, after inflation) and still,
nobody wanted to borrow. The only thing needed is to prevent
liquidity from being drained, by vandals and pirates etc.
It seems to me, today's situation is like 1971 or the late 1960s,
really, when US imports of oil were causing such huge balance of
payments deficits that the US needed to setup the "petrodollar
recycling" arrangements with the Saudis. I seem to note, a bit late,
that this scheme depended on growth in the US-- it was a scheme by
which prices in excess of costs were extracted from the US by
whoever had the oil wells-- a completely absurd situation -- and
then, all those $trillions were expected to be reinvested in the US
capital markets. Now, that's a recipe for disaster, because in a
reasonably mature economy, neither companies nor households need or
want that volume of capital investment. So, it went into collossal
bubbles, one after another. The whole scheme is really stupid and
needs to be reformed. It's mostly caused by the ridiculous runup in
oil prices. Since hydrocarbons have intrinsic economic value in
excess of cost, the excess gain should be taxed away, and
redistributed rationally to households and businesses. Certainly,
it should not flow to whoever controls the oil wells. And it
shouldn't flow to whoever happens to live nearby the oil wells either
(Be they Alaskan, Iraqi, Texan or anybody else.)
At 12:25 PM 10/31/2008, Stathis Stassinos wrote:
>Yoshie, it was fun reading about mrs Watanabe, but what I dont get
>is how low interest rates will start new bubbles in this enviroment.
>Our current problem is not about rates, but about fear. Argentinian
>bonds have 30% return in dollar terms, Islandic rates are 18%, but
>if you are not sure about getting your money back, 5,6,10 or 15%
>wont make a difference.
>Its the same thing as the libor. Its not about the rate, as about
>the fear that your counterparty will default and that will trigger
>your default too. I think that Keynes Liquidity Trap doesnt really
>care about the rates. It s a situation were nomore credit worhy
>So, do you believe that dollar or yen "curry trade" will resume swiftly?
>Isnt mrs Watanabe suffering from huge losses?
-------------- next part --------------
A non-text attachment was scrubbed...
Name: not available
Size: 3859 bytes
Desc: not available
More information about the A-List