In February, 1992, just after the height of the “Japan is Going to Take over the US!” mania, the yen was trading at 127.6989 yen to the dollar, which was near its previous all time low of 123.2020 set in November, 1988. This was seen as a very bad thing indeed. You might remember all the portents the pundits of that day saw in the news that President Bush (the elder) had taken ill on an official visit to Japan the month before (to beg them to buy more American auto parts) and vomited on Prime Minister Kiichi Miyazawa at an official state dinner in Tokyo.
That was then. This is now. This morning the yen is trading at or around 89-90 yen to the dollar. It’s been trading under 100 yen to the dollar since October of last year. To give you some perspective, the yen was still trading around 120 yen to the dollar as little ago as January, 2007. So, in barely 25 months, the dollar has fallen 25% against the yen. And most of that decline (about 15%) has occurred since September 1, 2008 when the yen was at 106.5748 to the dollar.
And this is occurring at a time when Japan’s economy is in a “severe state” which will require “extraordinary” measures be taken, according to “Bank of Japan board member Atsushi Mizuno” who spoke to reporters today.
I know it’s only one data point, but it is, I believe a significant one. Currency traders and other investors are looking at the situation in the United States and converting their dollars to Japan’s yen (and also the Euro) at a frightening rate. Currencies which represent two economies in severe distress. Yet currencies these traders see as a better bet than the Uncle Sam’s Greenbacks. Of course this is good for our trade deficit, but mostly because we are buying fewer imports, not because we are selling more American made products overseas. We are actually exporting less, but the decline in imports into the US dwarfs the decline in sales of American exports.
In November [of 2008], the goods deficit decreased $16.6 billion from October to $52.4 billion, and the services surplus decreased $0.4 billion to $12.0 billion. Exports of goods decreased $7.6 billion to $97.2 billion, and imports of goods decreased $24.2 billion to $149.7 billion. Exports of services decreased $1.2 billion to $45.6 billion, and imports of services decreased $0.8 billion to $33.6 billion.
In November 2008, the goods and services deficit decreased $19.4 billion from November 2007. Exports were down $2.4 billion, or 1.7 percent, and imports were down $21.8 billion, or 10.6 percent.
I don’t know if the stimulus bill, as presently written, is a good one or a bad one, or if every item in it will help our economy all that much. I imagine that a lot what’s in the bill will have little if any immediate impact (for example, tax benefits which allow businesses to write off current losses against past tax liabilities from former years). I do know, however, that doing nothing will only continue to drive our country down toward a third world economic status at an ever faster rate. Doing nothing will only accelerate the flight of capital out of the United States as the rich and big multinational corporations look for safe havens to park their assets, their profits and their wealth. Unless we begin the hard work that President Bush and the Republicans in Congress could never find the time for during the prior eight years, we will be not merely staring down at an abyss, but falling headlong into one.
