Thursday, April 07, 2005

Brad Setser has another post up today on how the Koreans are getting pissed off that they are being force-fed dollar assets. I've addressed this matter myself, most recently on March 31.

Suffice to say that in my view, the Koreans have only two real options. The first is the beg the Chinese to revaluate. I simply cannot see any way for Korea to break from supporting the dollar by itself. The won would soar again, and the Koreans have already shown that this is unacceptable.

The second is to choke off the domestic economy provoking a recession. Japan has enjoyed a fairly stable yen-dollar (and thus yen-renminbi) rate for months now without need to intervene in currency markets thanks to the demise of yet another hopeful end to the country's decade-plus long recession.

I suggest begging is the preferable strategy. Best done in private, however.

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