Saturday, December 03, 2005

When global capital markets prevent balancing

Well, this ought to help the $80bn goods trade deficit the US is going to rack up with Japan this year.
The amazing shrinking yen continued its slide this week, crashing to a seven-year low point against the euro, sterling, Australian dollar and South Korean won and to a 30-month low against the US dollar. . . .

The chief problem for the yen is that the flattening of the US yield curve has made it uneconomical for Japanese investors to hedge their ongoing purchases of US Treasuries, but a falling yen encourages overseas investors to hedge their purchases of Japanese equities – negating the value of these latter flows in currency terms. . . .

Japanese ministers suggested the government was comfortable with yen weakness.
Yeah, no kidding.

In 2004 the US ran a $75.6bn goods trade deficit with Japan. That figure will be well over $80bn by the end of 2005. No surprise considering the yen is some 13% weaker in nominal terms now than this time last year (closer to 10% weaker in real terms). So far the US is exporting only 1.3% more goods to Japan this year over last year's pace, while importing 7.0% more.

The US services surplus is indeed growing this year, up a big 18% over 2004. Last year the US ran a $15.6bn services surplus with Japan. 18% larger is less than $3bn more, however, thus still not enough to keep the overall trade balance with Japan from deteriorating.

Global capital markets are determined to prevent any balancing mechanism from operating until it's too late to avoid the hard landing scenario everyone fears. So where are the signs of a new Plaza Accord in the offing? I'm not holding my breath.


At 6:51 PM, Anonymous Anonymous said...

A Plaza - like accord presumes that other governments would trust the Bush administration enough to enter into an agreement with it. It also presumes that the Bushies could get Congress to go along with whatever monetary/fiscal mix they came up with.

Why would anyone believe either one?

Steve Kyle

At 6:09 AM, Anonymous Anonymous said...


Ah don't quaht unnerstand whah yer so worried 'bout this trade defeeecit and capeeetal market imbalancin' with them Jaypaneeese. Thayze only a trade defeeecit if'n you think of Jaypan's eeeconomy as separate from our'n. And if'n ya think of thuh Jaypaneese central bank as separate from our Fedeeeral Reeeeserve. If'n ya think of the Jaypanese economy as part of our eeeeconomy, and thar central bank as part of our'n, whah then thar ain't rilly no defeeecit. Thayze just family bein' a little unfair about how the dinner scraps iz'a bein' shared at the table, capeechie?

See, thuh waze ah seez it, ol' Poppy Bush done took them Jaypaneese down a couple notches with the Fedeeeral Reeeserve interest rate and OMO shenannigans that hurled them hard workin' Jaypaneeese folk into a decade long deeeepression (ah don't believe in recesssions, thayze all just big er little deeepressions when yer uh corporal). And then as a kind of a quid pro quo fer takin' our financial foot off'n the back of their neck, some of our central bank money trusters from our leadin' investment banks had to git positions in their investment banks what controlled their central bank...soze we could kinda work with thar central bank on a kind of uh more hospitable basis, don't ya know. so, here's what ah'ma beatin' mah gums about, here, General: thar central bank ain't'a doin' nothin' that our central bank ain't'a tellin'em tuh do reeegardin' capeetal market imbalancin'. At least that's how it boils down to me here down here among thuh economic grunts of this general's army.

Now, ah ain't'a sayin' i got this all figgered out er nuthin'. Shoot fire, ahm only a corporal. Just think of this post kinda like ol' Tommie Stearns Eliot said in that there peeeeeculiar little poem Geeerontion: "Thoughts of a dull brain in windy spaces" squattin' in an eeeestaminent. In fact, ah'm kinda reeeminded of some of that poem right now. It goes like this:

"History has many cunning passages, contrived corridors
And issues, deceives with whispering ambitions,
Guides us by vanities. Think now
She gives when our attention is distracted
And what she gives, gives with such supple confusions
That the giving famishes the craving. Gives too late
What’s not believed in, or if still believed,
In memory only, reconsidered passion. Gives too soon
Into weak hands, what’s thought can be dispensed with
Till the refusal propagates a fear. Think
Neither fear nor courage saves us. Unnatural vices
Are fathered by our heroism. Virtues
Are forced upon us by our impudent crimes.
These tears are shaken from the wrath-bearing tree."

As always, ah salutes ya, general.

Reeeespectfully submitted,
Corporal Glutt

At 2:14 PM, Anonymous Anonymous said...

Thayze just family bein' a little unfair about how the dinner scraps iz'a bein' shared at the table, capeechie?
No capeechiemoto mundolo. Butta git the drift: the windsa blown agin the havenotornothins and with those thar havemores reeeeeeeeegardless of nashunalaliteee.
T S Elliot means ocurse that ya lose that stripe Corporal. Yazeer, you'll have to suffer that demonsun back to Colonel.
My Condolenceseeeees, calmo

At 4:38 PM, Anonymous Anonymous said...

Wahl, shoot fahr, Mister Calmo, ya couldn't uh insulted me more than uh promotin' me tuh Colonel. But ah'll takes mah medicine like a good grunt, cuz that's what ah gits fer quotin' a danged poet ah cain't unnerstand so good.

Col., er, Corporal Glutt

At 1:09 AM, Anonymous Anonymous said...

Dang. I doan wanna toak abowt howlong itook meeta fiyond the kerrect spellin of Chameleon ta deescribe yer rank Glutt, butt I'm mightee sore at yoo and yer dang 'spandin the Anglish Langwhich. Itza cripplin me.
Hours n hours with 'c' then 'k' then I ferget. I sewerendher.
Did I say how I appreciate the Elliot? Truly a skilful delivery and a clever presentation. You have calmo's ear.

At 6:58 PM, Blogger Camille Roy said...

Methinks we won't get out from under the Bush Administration unscathed.
Methinks the scathing will take the form of an International Financial Crisic.
(I can spell!)

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