Friday, February 20, 2004

BonoboLand ? On Currency Adjustment Part II

BonoboLand ? On Currency Adjustment Part II
by Edward Hugh

You can find Part I of this further down the page in the Global Finance section. So the dollar is destined to fall. So if one thing goes down, something else has to go up, right. Enter the first candidates, the euro and the yen. Now the Japanese economy has, as everyone knows, been the sick man of the planet for the last decade, mired in an apparently inexplicable bout of slow-burn deflation, a deflation which, if anything, has been accelerating during recent months. (And if you want a quick reality check on what is actually happening in Japan you could try this William Pesek piece). And what is the main proposed remedy for deflation once interest rates hit zero, and increasing the money supply reveals itself to be totally ineffective: why devaluing your currency, of course.

Now the Japanese have been in no postition to enforce an outright devaluation (which they probably need), but they are in a position to try and reduce the rate of its rise. So they print money and buy dollars: " ...Link

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