>
> I brought up the likely effect on the rest of the world, but he didn't
seem
> too worried. Maybe that was me misreading him. As I see it, the effect on
> Japan alone could feed back on the US in a really ugly way. Taggart Murphy
> argued that if Japanese exports to the US collapsed, it might force the
> Japanese to suddenly repatriate their trillions of dollars in Treasury
bonds
> back into yen. In other words, it wouldn't just be a question of a halt in
> fresh US capital inflows; it could end up with foreigners liquidating
their
> existing stock of US assets.
Murphy's right, except we might not have to wait for a collapse of Japanese exports to the US, given the state of things in Japan. While internationally the yen went below 120/$ yesterday, for the last quarter, price deflation domestically has been about .6%. The relative increase in domestic debt b/c of this is only making it harder on Japanese banks with non-performing loans.
On the other hand, if the Japanese do manage to reach a low but reasonable inflation target, the bond market will likely get whacked. All those foreign issuers of Samurai debt will get killed if interest rates rise to keep up with inflation. So it doesn't look good either way.
As for Bergsten, I wonder about the "national savings" argument. The U.S. has been running current account deficits for 20 years, with and without a fiscal surplus, and thru the Plaza accord and the reverse Plaza. What good will savings do when the dollar tanks? Wouldn't it matter more what form they're in than that they are there?
Christian