Saturday, July 19, 2003

The headlines should read: John Snow to Europe: "Drop Dead".

Yesterday the esteemed US Secretary of the Treasury John Snow was in Germany and responded to questions regarding the continuing refusal of the Japanese to let the yen float upwards to reflect the country's massive current account surplus, especially vis-a-vis the United States. While Alan Greenspan sits in Washington berating the Chinese to not only change their peg with the dollar but break it completely and float the currency, John Snow has sympathy for Tokyo.
Brushing aside the concerns of many Europeans, the United States Treasury secretary, John W. Snow, said today that the Bush administration would not pressure Japan to stop intervening in the currency market to depress the value of the yen.

"Japan is going through a tough set of things," Mr. Snow said to reporters here at the end of a four-day trip to Britain and Germany. "As they deal with those things, we're not going to be critical of them at all for their actions."

Mr. Snow said that he understood Japan's desire to stanch the rise of its currency to keep its goods competitive in overseas markets. "They need a strong export sector to be able to get their reforms done," he said.

Such words are cold comfort to Europeans, who say their exports are being hurt in those same markets by the powerful rise of the euro. Mr. Snow helped fuel that rally during a previous visit to Europe, when he appeared to abandon Washington's longtime commitment to a strong dollar.

Today, Mr. Snow insisted the United States wanted a strong dollar. But he added, "We're committed to this regime of floating exchange rates."

And he implied that the euro was trading at a proper level. "Where is it relative to where it started?" he asked. "About the same."
The General has already discussed the results of East Asia either pegging or heavily managing their 'floating' currencies in the face of massive current account surpluses and relatedly massive US current accout deficits. The dollar feels pressure to fall (and East Asian currencies to rise) but Tokyo, Beijing, Hong Kong, Seoul and the rest refuse to allow this to happen. So instead the euro soars in the face of a flagging economy, even in the face of recession and possibly deflation at the heart of Europe.

Apparently the US understands the unique plight of the Japanese. For the Europeans, however, it's more or less the message Gerald Ford gave to New York City in 1975: "drop dead".


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