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    • Sun Apr 13th 22:07 PM | Rating: 0 0
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      The Credit Crisis and the U.S. Dollar
      Nice article but I think your of the mark with a couple of your assumptions. Firstly the Japanese financial crisis was not about inflation but deflation. It was the fact that all assets, real estate stock market etc declined so quickly and were so highly geared that has led to the very high savings low consumer spending economy we see today. Japanese balance sheets are fat and unproductive but that is conditioning from years of slow growth and relentlessly paying down debt. The Fed is painfully aware of this and in fact it has been preaching to Japanese authorities for years to try and change policies. They are now staring down the barrel of the same problems. Yes the fed has cut rates and yes it is printing money but it probably isn't compensating for the monetary destruction brought about by the collapse in the fixed income derivative markets.

      Secondly you are correct to point the fall in the value of the dollar as an important sympton of the monetary demise but rather than extrapolate an ever lower dollar think of it from a Euro/Gold investor's point of view. Atrractive US assets are becoming historically very cheap. Evidence of this is the willingness of foreign soverign wealth funds to buy into stricken US Investment Banks, high risk but historically very profitable trades. Sooner or later foreign capital is going to be attracted back into the US economy and the dollar slide will at least halt if not actually reverse.

      So instead of being gloomy about the future look to the upside, improving terms of trade should make US exports comparatively cheap. Import substitution should be back on the table, look to bring some production back onshore. The Japanese are actually now building new car plants in Japan for the first time in 20 odd years! Higher food and commodity prices are much more of an issue for the developing world as they are a larger slice of input costs compared to wages. So don't knock inflation you do actually need some in order to continue to grow the economy. If the dollar does pause in it's decline the long commodities trade might not be so profitable for you for a bit.
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