From: miklg@acuson.com (Michael Goldman )
Subject: Re: DOES AMERICA SAY YES TO JAPAN? - Off track!!
Organization: Acuson; Mountain View, California
Date: Thu, 24 Dec 1992 21:09:50 GMT

jcliu@four-lab4.Berkeley.EDU (James C. Liu) writes:

>In article <1992Dec19.000030.9064@informix.com> proberts@informix.com 
>(Paul Roberts) writes:

>  >I can see that there is lots of enthusiasm for America getting what it 
>  >wnats in the world by sheer bullying, but doesn't it occur to you that
>  >this tactic works well only against weak countries?
>  >
>  >What do you do when Japan responds to your 10%, 10%, 10% tariffs by
>  >failing to show up to one month's T-bill auction, and the US immediately
>  >goes bankrupt?

>The immediate effect of tariffs on Japanese products will be inflation
>in the U.S.  The Japanese will try to counteract by lowering prices but
>basically consumption of Japanese products will decrease and so will 
>Japanese revenues.  Should the Japanese decide to retaliate by not buying 
>T-bills, then this will force the Treasury to up interest rates to generate
>the demand.  

	At the risk of introducing some actual data into the net (against
	the rules, I suspect):

	From "The Economist", April 25, 1992

	"On April 17th Alan Greenspan [Fed Reserve Chairman] and
	Richard Breeden, chairman of the Securities and Exchange
	Commission, [testified before the Senate Banking Committee
	that]...at the end of 1991, Japanese investors held $78B - less
	than 2% - of total American government debt, 1.1% of corporate
	debt, and about $20B worth of American equities, equal to about
	0.5% of American market capitalization."

	----------

	2% - not exactly scary now is it?

	Besides, what if they and others take their money and stick it
	in German bonds; that would force German rates to decline and
	American rates to rise to compete.  Then those who are just
	seeking the best return and are not motivated out of political
	pique would transfer their money to US bonds, allowing US rates
	to decline and German rates to go back up.  Actually, none of
	this would happen, because the transfers would all happen at
	the speed of Electronic Funds Transfers - i.e.,
	instantaneously.  With international money free to go where it
	can get the best return, (real) interest rates are the only
	determining factor.

	According to a recent San Francisco Chronicle, cumulative
	Japanese investment in the US as of 1991 was $83B.  This was
	second to the of Great Britain at slightly more than $100B.  To
	put this in perspective, the total market capitalization of
	companies listed on the various stock markets in the US was
	$3,500B in 1991.  This puts Japanese investment in the US at
	2.4% of total market capitalization of public US cos.,
	including investment outside of the stock markets.

	Interestingly, the balance of investment is now flowing into
	Japan.  (I.e., more US money is investing in Japan than vice
	versa.)  There are several reasons for this unheralded
	reversal.  On the Japanese side investors have less money, what
	money they do have is needed to cover losses at home, their
	investments in the US have not been universally successful so
	they are starting to be more cautious.  On the American side,
	Japanese prices are starting to get affordable, there has been
	some liberalization of investment rules by Japan, a growing
	realization of the importance of Japan's market, and Japanese
	regulations which are actually designed to _encourage_ foreign
	investment.  This latter is due to the realization that much of
	the chronic trade imbalance is caused by wholly-owned
	subsidiaries importing goods from the parent co.  With more US
	and European cos. having wholly-owned subsidiaries in Japan,
	the hope is this may decrease the imbalance and concomitant
	tensions.
 

	- Michael Goldman

-- 
"History teaches us that men and nations behave wisely once they have
exhausted all other alternatives." - Abba Eban
	Disclaimer:  All views are solely my own & not the views of Acuson.
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