Jack Walker

The Fallacy of Floating Exchange Rates

Lok,

You are certainly right about the speculative flows in the current market environment. There are many recommendations in the currency market to short the euro against the yen. The long yen trade could well be another trend following frenzy similar to the one that pushed crude oil to $147 last spring. While you are right to be questioning the economic disruption that is being caused by excessive speculative flows, the problem is separating desirable speculation that plays a role in market liquidity from the disruptive and mindless trend following that pushes asset prices to dangerous levels. How should this issue addressed?

Jack