Sunday, September 19, 2010

The importance of options: no need to BRIC it (part deux)

Liam Halligan comments on currency games in Japan. The Japanese have been trying to reduce the overblown value of their currency to help exporters. The reason it has strengthened is because currency investors wanted to find a currency outside the Euro or Dollar in which to hedge. The upside of the strengthening might be the ability of Japanese firms to make investments abroad. It is an old game which is being played with a new intensity in the modern era. 

(click timestamp below to read more)

I think it shows us something about the vigour of international trading which explains why things haven't yet gone belly up in the economies of the US and Europe, despite politicians which have colluded with financiers in making all the wrong moves. While people can still shift money around to places where the structural set up, although weak, is differently oriented to the "nitro-glycerine" embedded-in-debt West, there remains some dynamism, some profit motive and a chance to dance around the pitfalls created by cratering financial institutions and Governments. 

Furthermore, trade is weirder and more dynamic than ever. While I understand the odd cultural forces which produced it, I was nonetheless surprised to hear than many chickens consumed at British institutions are in fact Halal meat from Turkey. Yes, yes, shocking erosion of culture and all that- I agree- but most immediately this is a story about increasing trade. We can deal with the political takeover dimension of this later- the fact is that people and goods are more mobile than ever, prices, supply and transport more flexible than ever. Also, there must be a network of youngish guys developing contacts and networks to make this happen; this brings us back to the question of demographics. Turkey has them on its side; we get the chicken. Again, a mixed blessing you may think from the cultural point of view, unless you're too busy stuffing your face.

The overall point I would make is this: the world economy may end up reprieving the silly bankers with their malinvestments by making real economic growth to cover their blushes. The silly bankers are clear that they will use every political prop to avoid responsibility for inflating a wave of transactions and riding it to destruction. Their excuse may be that they were anticipating a trend and didn't want to miss out on it, so they globalised ahead of themselves. As a defence it might have partial validity, but later on I will scratch deeper to show if I can what charlatans these people really were.

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