[HN Gopher] How to Win a Currency War
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How to Win a Currency War
Author : niklasbuschmann
Score : 43 points
Date : 2020-04-10 21:25 UTC (1 hours ago)
(HTM) web link (www.lynalden.com)
(TXT) w3m dump (www.lynalden.com)
| m_a_g wrote:
| Japan has $1.2 Trillion worth of U.S. treasury bonds. I wonder
| what will be their next move if the U.S. dollar weakens.
| hogFeast wrote:
| There is no other move. The reason they own that much is
| because USTs are deep and liquid. There is virtually no other
| market in the world where you can deploy $1trn (certainly no
| market outside the US).
| brettproctor wrote:
| Sometimes the only winning move is not to play :-)
|
| At _some_ point it becomes irrational to keep holding USTs. I
| 'm well aware it seems right now there aren't any other good
| options, but that can definitely change quickly.
| hogFeast wrote:
| I don't think you understand.
|
| I am not saying there are no other good options, there are
| literally no options.
|
| You understand that having $1trn isn't like your TD
| Ameritrade account. Thought experiment: they put the money
| into Japanese banks. First, the JPY starts trading at 50
| against the USD. Japanese industry is over. Second,
| Japanese banks literally cannot pay the interest on these
| deposits because they can't find enough people to lend to.
|
| There aren't enough European govt bonds. They aren't enough
| corporate bonds (and they aren't liquid enough). Literally,
| there is no asset class in the world large enough for them.
| The only other asset class that was large enough was
| MBS...which some people feel skittish about since 2008 (but
| which Japan and China do own large amounts of...again,
| because there is nothing else).
|
| Just as an example: in the 1970s the oil crisis caused a
| huge boom in earnings for Middle Eastern nations. Most
| govts there weren't financially sophisticated, they had no
| idea what to do with all this money so they started
| depositing it in US banks. These banks had no idea what to
| do with it either. They couldn't find enough borrowers
| (rates were pretty high then) so they started lending to
| govts in emerging markets. This trigged a decade-and-a-half
| long financial crisis from 1980 when these borrowers
| started defaulting (in 1980, Citibank was effectively
| bankrupt because of these loans). Again, this isn't like
| your Ameritrade account...when you have a lot of money, you
| start changing how financial markets fundamentally work. So
| you have to be very very careful.
|
| Hopefully that makes it clear.
| yingw787 wrote:
| When you say it like that, it makes U.S. Treasuries sound
| like the S3 of the financial world. Simple, reliable, and
| comparatively inexhaustible. malloc() for the financial
| web.
|
| Also very opaque to the average person.
| ysw0 wrote:
| They're in a good position as a net creditor nation. While
| they have a large national debt and have been undergoing
| QE, they have a steady income stream from treasury bills.
| roenxi wrote:
| The income stream is unlikely to be steady; the real
| value of the fixed stream of dollars is (probably) going
| to drop.
|
| It isn't really conceivable at this point that the US
| reduces their debt:GDP load without a currency crisis.
| Their period of service as the reserve currency is
| probably also drawing to a close; based on the poor
| fundamentals that the article mentions.
| thedudeabides5 wrote:
| Ok so sell USD to buy what?
|
| EUR? How about after they figure out Italy
|
| JPY? More debt than US and lower rates.
|
| CNH? Ha
|
| Gold? Sure, but it's not a currency
| wyager wrote:
| Why are you set on holding currencies? I think Dalio is a
| clown, but I do like his pithy "Cash is Trash". There's not
| really any compelling reason to hold a modern fiat currency
| except to satisfy liquidity requirements. Gold, Bitcoin, plain
| old equities, whatever, all provide some measure of relief from
| the inflationary treadmill.
| jameslevy wrote:
| KRW (Korean) is interesting, although I'm hardly an expert in
| currency trading.
| brettproctor wrote:
| Most gold proponents would say gold being money and not a
| "currency" is the whole point.
| dmurray wrote:
| That argument is literally called out as "the biggest push-back
| I receive" and the largest section of the article is devoted to
| addressing it.
| chrisco255 wrote:
| I love that Lyn's articles are getting top billing on HN. She's
| got very good analysis of the macroeconomic situation. In times
| like this, very important to educate yourself on these topics.
| brettproctor wrote:
| Really useful twitter as well:
| https://twitter.com/LynAldenContact
| oh_sigh wrote:
| Honest question...If you aren't educated on the topic, how can
| you tell if there is good analysis or not? (Versus just reading
| and believing random cranks). Is there any way to test her
| hypotheses against reality?
| exolymph wrote:
| Evaluate the argument. Does the reasoning make sense, and is
| it supported by the evidence introduced? Think of counter-
| possibilities -- what could or would falsify the author's
| supposition? Find out who disagrees. Does their reasoning
| make sense, and is it supported by the evidence they proffer?
| Etc.
|
| This is known as "critical thinking."
| bqe wrote:
| It's important to know the limits of your knowledge and
| reasoning capabilities and defer to relevant experts, which
| is known as epistemic learned helplessness[1]. This is also
| much faster, as a lot of bullshit sounds like truth if
| you're unfamiliar with the field.
|
| [1]: https://web.archive.org/web/20180416171148/http://squi
| d314.l...
| empath75 wrote:
| There's nothing in her linked in that would lead me to
| believe she has any idea of what she's talking about. She was
| an engineer until a year ago.
| chrisco255 wrote:
| And Elon Musk was a software engineer before he started
| rocket ship and electric car companies. Intelligent people
| are fully capable of making jumps between disciplines and
| excelling in several of them. Sorry, but looking at
| someone's credentials rather than looking at their
| reasoning skills alone will lead you astray. You've got to
| reason. You've got to engage your critical thinking skills.
| No one is saying Lyn is the oracle of our times. She's got
| very good analysis, but there are many others and a lot of
| them are on Twitter. I recommend to engage with that crowd.
| I've seen Lyn debate with them on Twitter, and it's always
| an interesting conversation.
|
| Other thinkers in this space I'd recommend: Raoul Pal:
| https://twitter.com/RaoulGMI Danielle DiMartino Booth:
| https://twitter.com/DiMartinoBooth Luke Gromen:
| https://twitter.com/LukeGromen Brent Johnson:
| https://twitter.com/SantiagoAuFund Ray Dalio:
| https://twitter.com/RayDalio
|
| ...etc. Search around. Educate yourself!
| hogFeast wrote:
| I have no idea who the OP is but a lot of the stuff is not
| accurate (I saw the previous post that was linked here). It
| is a slightly less factual ZeroHedge.
|
| For all it's faults, ZeroHedge actually gets the mechanics
| roughly correct (although often doesn't get the
| interpretation right leading to odd conclusions).
|
| But a lot of the OP is just...not correct (as an example, the
| OP says that countries were on the gold standard in the
| 1920/30s and devalued as a response to the crisis...wrong,
| they were on the gold exchange standard and devaluation
| wasn't the response, it was suspension of convertibility) and
| vague (all these posts are very wordy, poorly written, and
| seem intended to reach a conclusion that was arrived at
| before any evidence was examined).
|
| I don't know why people are so fascinated with the idea that
| their currency is worthless. In the US, I assume it is
| related to the fact that much of America has German
| roots...where this "currency crash literature" is also a
| fetish. But if you are worried about inflation, own gold, own
| inflation linkers, and own good businesses. That is it.
|
| Also, maybe the dollar will fall in value but if you are in
| the US and have USD liabilities, it makes no difference to
| you. Stuff that cost $1 will still cost $1.
| exolymph wrote:
| > maybe the dollar will fall in value but if you are in the
| US and have USD liabilities
|
| Are you proposing that the value of USD rises and falls in
| a geopolitical and macroeconomic vacuum?
| wyager wrote:
| > If you aren't educated on the topic, how can you tell if
| there is good analysis or not?
|
| Even people who _are_ educated are systematically unable to
| determine if a macroeconomic analysis is actually good, which
| is why you have multiple groups of extremely smart economists
| who completely disagree on what represents a sound basis for
| macroeconomic theory.
|
| Economics as a field is generally unable to test these
| theories against reality, probably because any predictive
| failure can be, and is, written off as "there were
| confounding variables, but the fundamentals of the theory are
| still good".
| onlyrealcuzzo wrote:
| That's because there's a million places you can be wrong.
|
| Her position seems to be that medium term, the dollar is
| the major currency with the most room to fall. And so over
| the next few years, it probably will fall the most.
|
| The argument is based on the US having the largest twin
| deficit -- a huge trade deficit and a huge fiscal deficit.
|
| Medium term, different countries are going to see their
| trade & fiscal deficits change dramatically.
|
| If your economy runs on oil exports, good luck maintaining
| a huge trade surplus. Ditto that for almost any commodity
| for the next couple years. If your economy runs on auto
| manufacturing, good luck with that -- similarly anything
| with complex supply chains. This is most emerging
| countries.
|
| Japan, for example, might not need much stimulus. And the
| EU might need much more than the US. Who knows right now?
|
| So, yes, her argument is sound if everything stays as it
| is, and the only thing that changes is how much federal
| governments print and spend.
|
| But everything is likely to change. A lot. So unless you
| can predict how these deficits will change, it's not that
| helpful.
| aaronscott wrote:
| Agreed!
|
| I spent several hours reading through her posts yesterday and
| came away with a much better understanding of fiscal and
| monetary policies. I did not understand how many levers
| countries have to modify their currencies.
|
| I also enjoyed her breakdown of contrarian investing[0] and how
| it can be applied.
|
| 0: https://www.lynalden.com/contrarian-investing/
| 12yrprogrammer wrote:
| Maybe the libertarian party is awful at campaigning but they are
| absolutely correct on economic policy.
|
| Or rather predicting the outcome of current economic policy.
|
| Buy Bitcoin
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