secrets: Japan and the dollar

[donsu]

http://www.atimes.com/atimes/Global_Economy/GA29Dj01.html


Fed's yen for bovine policies


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. In a private letter I have conjectured that a conspiracy may exist between the Federal Reserve and the Bank of Japan. The latter is buying US Treasury paper through the good offices of the former over and above the deficit America is running in its trade accounts with Japan. These highly secret transactions are reported nowhere as they are on custodial account.

I am well aware that this conjecture can be neither proved nor disproved. The conspiracy, if one exists, is part of the highly classified contingency plan hatched out at the Fed. It calls for bribing (blackmailing?) the Bank of Japan to get its cooperation in forestalling a run on the dollar led by other foreign central banks. If such a run were to take place, it would destroy the dollar as well as the international monetary system, and drive the rate of interest to stratospheric heights, rendering the Japanese hoard of American paper worthless.

The run is widely expected by many a knowledgeable observer, and the bond market is girding itself for a rise in interest rates more vicious than that 25 years ago. The obituary of the bull market in bonds has in fact been written already by the world's foremost bond trader, Pimco's Bill Gross. However, the market, like Mark Twain reading his own obituary, talked back saying: "The reports of my demise are grossly exaggerated." Chances are that this particular bull, taunted by the oxen at the Fed, is getting ready for another run.

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The conspiracy may be to the liking of the Bank of Japan, which has a reputation of dealing most ruthlessly with speculators who oppose its policy of a weak yen. It prints yen clandestinely at no cost to itself. The bank's acquisition of bonds is therefore a windfall. These bonds were accumulated during earlier decades, in consequence of the US government twisting the bank's arm not to buy gold with unwanted dollars, which is what Charles de Gaulle would have done. The Japanese know only too well that their hoard is so enormous that the chances of getting rid of it in case of a dollar crisis are nil.
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the article ends with: The chairman (Greenspan) is traitor to the cause of sound money.

[On the Road]

1. Those Asia Times Editors are No Fools

I take their speculation very seriously.

The Bank of Japan has a huge stash of dollars to defend. The Bush administration likes to play chicken: "We dare you to let the dollar crash." Something like the old saw about if you owe the bank $10,000 and you can't pay, you're in trouble. If you owe the bank $10 million and you can't pay, the bank's in trouble.

What I want to know is: In what way is the yen undervalued? I was in Japan over the holidays, and prices were simply astronomical. It's what I would expect going from a country with worthless currency to the Euro.

[TexasLawyer]

2. interesting

The author: Antal E Fekete is Professor Emeritus at the Memorial University of Newfoundland

But this would involve a conspiracy, and as we all know from questioning the 2004 election results, conspiracies are impossible.