On Fri, 10 Sep 1999, Rakesh Bhandari wrote:
> Date: Fri, 10 Sep 1999 14:00:43 -0400 (EDT)
> From: Rakesh Bhandari <bhandari@phoenix.Princeton.EDU>
> Reply-To: firstname.lastname@example.org
> To: email@example.com
> Subject: [OPE-L:1175] Re: Re: Re: Re: monetary inflows versus capital accumulation
> As always, your analysis is lucid, careful and grounded.
> >So, in order to fortify their balance sheets, Japanese banks may indeed
> >have to withdraw some of the very large amounts of capital that they have
> >invested in the US since the early 80's. This in turn would increase the
> >US balance of payments deficit and put additional pressure on the dollar
> >(in addition to the pressure of an increasing current account deficit).
> >There will be less of a capital account surplus to offset the current
> >account deficit, and hence the dollar will be more likely to fall.
> Yet at the same time, the US possesses non economic power to prevent such a
> divestiture. The US can force Japan to hold on to (or continue to buy) US
> securities as defacto payment for the provision of regional security, a
> quid pro quo for continued access to the US market, and as insurance of US
> cooperation in future bailout efforts (to say nothing of the need for
> dollars for international transactions, including purchase of oil and other
> commodities priced in greenbacks). The non economic cards all seem to be in
> US hands. In some ways, the US current account deficit strikes me as index
> of US imperial power (how do US imperialism and power politics generally
> fit into your analysis?) This is one reason I am skeptical of a world wide
> flight from the dollar based on a loss of confidence in the US economy.
> It's true that Summers may allow the dollar to fall a bit as a way of
> aiding US exporters while spreading the bubble around a bit to Japan. But I
> really doubt that the Japanese banks have the power to divest from US
> assets in a massive way that runs deeply counter to US interests, unless of
> course Japan is forced to do so due to a collapse in its banking system.
Rakesh, thanks again very much for your comments.
I don't think the US has enough non-economic power to make the Japanese
banks keep their money in the US if they don't want. Especially if the
Japanese banks think that some divestiture of dollar assets is necessary
for their survival. Maybe I am being naive, but I don't see it. Any
sources or evidence? Makoto, what do you think?
What is more likely is that the Japanese government will intervene in the
currency markets in order to support the dollar (and avoid an
appreciation of the yen), because an appreciation of the yen will hurt
Japanese exports and the hoped-for Japanese recovery. They have already
done this several times in recent weeks, including last week. And they
might even be helped by US intervention, although there has been no sign
of that recently. But, as always, the likelihood of success of government
intervention in the currenct markets depends on how strong the selling
wave of dollars will turn out to be. Past experience is not very
> I got the idea from Susan Strange's thoughtful *mad money* from the
> University of Michigan Press, 1998. And my reading of the WSJ and NYT
> seemed to confirm the non neglible possibility of such an event.
> Comradely, Rakesh
Thanks for this reference, I will take a look at the Strange book.
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