Where will Peak Oil hurt the most? | 112 comments (112 topical, editorial, 0 hidden)

Re: Why the focus on currency reserves? (none / 0)

Currency reserves may be important for a soft currency country worried about whether it can ride out a short term oil price spike

You mention soft currency. Does that mean that the US, EU or Japan would be expected to have relatively small reserves because they are hard currency areas?

When the capital development of a country becomes a by-product of the activities of a casino, the job is likely to be ill-done. — John M. Keynes

by Carrie (migeru at eurotrib dot com) on Wed May 28th, 2008 at 11:48:37 AM EST
[ Parent ]

Re: Why the focus on currency reserves? (4.00 / 2)

The US, EU and Japan are going to have relatively small reserves because they are pursuing a dirty float rather than a policy of trying to steeply discount their currencies against trading partners.

IOW, you get large currency reserves as a side-effect of pursuing the neo-mercantalist policy of discounting the cost of your domestic resources in overseas markets by depressing your currency exchange rate.

The US, EU and Japan can't do that, because their's are the currencies that the neo-mercantalists are targeting. Its not possible for everyone to depress the value of their Foreign Exchange Rate against everyone else, because the FXR of currency B against current A is the inverse of the FXR of currency A against currency B.

A more useful 2-way breakdown would be net energy imports as a percentage of total current account inflows excluding energy exports, and current account outflows excluding energy imports as a percentage of total current account inflows excluding energy exports.

I've been accused of being a Marxist, yet while Harpo's my favourite, it's Groucho I'm always quoting. Odd, that.

by BruceMcF (agila61 at netscape dot net) on Wed May 28th, 2008 at 01:55:43 PM EST
[ Parent ]

Re: Why the focus on currency reserves? (none / 0)

BruceMcF:

The US, EU and Japan can't do that, because their's are the currencies that the neo-mercantalists are targeting.

Surely Japan is doing it?

by generic on Wed May 28th, 2008 at 02:43:23 PM EST
[ Parent ]

Re: Why the focus on currency reserves? (none / 0)

No, of course not.

Why surely?

I've been accused of being a Marxist, yet while Harpo's my favourite, it's Groucho I'm always quoting. Odd, that.

by BruceMcF (agila61 at netscape dot net) on Wed May 28th, 2008 at 10:45:51 PM EST
[ Parent ]

Re: Why the focus on currency reserves? (none / 1)

Because Japan is holding a Trillion Dollar? Although granted Japan's reserves did not grow particularily fast last year so Japan's currency manipulation may well be a thing of the past.

And then there is this:
How Japan financed global reflation

In 2003 and the first quarter of 2004, Japan carried out a remarkable experiment in monetary policy ? remarkable in the impact it had on the global economy and equally remarkable in that it went almost entirely unnoticed in the financial press. Over those 15 months, monetary authorities in Japan created ¥35 trillion.
[...]
The Bank of Japan gave the ¥35 trillion to the Japanese Ministry of Finance in exchange for MOF debt with virtually no yield; and the MOF used the money to buy approximately $320 billion from the private sector. The MOF then invested those dollars into US dollar- denominated debt instruments such as government bonds and agency debt in order to earn a return.

by generic on Thu May 29th, 2008 at 02:08:02 AM EST
[ Parent ]

Re: Why the focus on currency reserves? (4.00 / 2)

But in 2007, the Yen was over purchasing power parity, so the idea that the Japanese are deliberately discounting their currency against both the US$ and Euro doesn't stand up to scrutiny.

I've been accused of being a Marxist, yet while Harpo's my favourite, it's Groucho I'm always quoting. Odd, that.

by BruceMcF (agila61 at netscape dot net) on Thu May 29th, 2008 at 07:00:21 AM EST
[ Parent ]

Re: Why the focus on currency reserves? (none / 0)

I agree, but at least discounting the Yen against the $ is not unprecedented.

by generic on Thu May 29th, 2008 at 03:56:28 PM EST
[ Parent ]

Re: Why the focus on currency reserves? (none / 1)

Yes, certainly at one time the Japanese pursued a discounted FXR policy ... but that was years back.

Of course when the Japanese adopted a full accommodation monetary policy stance in the 90's, that resulted in a lower Yen (indirect) FXR, but that the way floating exchange rates are expected to work when a country has a sluggish economy and adopts a loose monetary policy.

Mind you, Japanese corporations went through a structural transition in the imported/domestic composition of their exports during the 1990's ... a major factor in the sluggish domestic economy in the 1990's ... so I guess someone could argue that they are embedding the neo-mercantalist monetary policy embedded in the Chinese and Southeast Asian into their exports via the imported component of their exports.

I've been accused of being a Marxist, yet while Harpo's my favourite, it's Groucho I'm always quoting. Odd, that.

by BruceMcF (agila61 at netscape dot net) on Thu May 29th, 2008 at 06:56:00 PM EST
[ Parent ]

Good observation. (4.00 / 2)

But the Japanese are much more flexible than their regional competitors for the simple reason that they own and co-own manufacturing facilities within many of their largest trading partners - the U.S. in particular. Taiwan has some similar endeavors, but nothing on the scale of the Japanese penetration.

Upshot is that they can - and do, as I can state from personal experience - make manufacturing/import/export decisions based on their analysis of the mid-term, relative financial trends between their domestic economies and those of their 'clients'.

paul spencer

by paul spencer (paulgspencer@gmail.com) on Fri May 30th, 2008 at 02:23:39 AM EST
[ Parent ]

Re: Why the focus on currency reserves? (none / 0)

The infamous Yen carry trade?

"It is not necessary to have hope in order to persevere."

by ARGeezer (ARGeezer a in a circle eurotrib daught com) on Thu May 29th, 2008 at 03:21:56 PM EST
[ Parent ]

Where will Peak Oil hurt the most? | 112 comments (112 topical, 0 editorial, 0 hidden)

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