A good post by Thomas Palley on the not-sufficiently-discussed role of Japan in global economic imbalances (code for “nations with high savings funding our consumption”), which we found courtesy Economist’s View. One quibble: he talks about the carry trade as if it was strictly an international phenomenon, that is, foreigners borrowing in yen and then […]
Read more...This story,”Carry trade returns,” comes from the Financial Times’ John Authers. For those new to the term, the “carry trade” in simple terms is when investors borrow in a currency with low interest rates (in this case, the yen) and use the proceeds to make investments in countries where the prevailing interest rates are high […]
Read more...Many observers overlooked the fact that increases in bank reserve ratios in China and India, which reduce liquidity by curtailing how much banks can gear their equity (and banks are much more important financial players in those markets than in the US) plus a teeny interest rate increase in Japan set the stage for the […]
Read more...Time to eat a little crow. I had a few past posts worrying about the unwinding of the carry trade. Even though the yen has been moving upwards, and the financial press keeps citing the carry trade as a contributor to the turbulence in the markets, two sources I consider well informed, one John Dizard […]
Read more...A fine post on Seeking Alpha, “What Good is the Carry Trade?” by Tim Iacono, takes a stab at the impact of the alleged unwinding of the carry trade (we have though it played a fairly big role in the upheaval of the last week plus, but no one can tell for certain) and the […]
Read more...Here it is, Sunday evening. The Asian markets are opening down. I don’t know about you, but I am already tired of the events of last week. They don’t appear to be ending anytime soon, despite the attempts at reassurance by various people in positions of authority. And no, I didn’t take a beating. It’s […]
Read more...The Wall Street Journal discussed the role of the carry trade in Thursday’s issue, quoted below, and Friday’s Financial Times, pointing to overnight trading in Tokyo, says the situation is worsening. The Economist and other financial publications have commented on the magnitude and risks of the carry trade, and how disruptive it could be if […]
Read more...An informative article in the current Economist on the dangers and economic distortion created by the carry trade, a topic we’ve discussed. On a massive scale, investors, typically hedge funds, are borrowing in yen, a currency with very low borrowing costs, and investing in currencies where the interest rates are high, like the New Zealand […]
Read more...A post from Mark Thoma’s Economist’s View, “Will the Euro Replace the Dollar?,” is useful and informative, but I am surprised that Thoma didn’t mention developemnts that confirm the authors’ thesis, namely, that the euro is becoming a competitor for the dollar as a reserve currency: Some countries that have been key providers of capital […]
Read more...While this topic may seem a bit esoteric to some readers, it is just about the most simple-minded trade in the financial markets, which is precisely why so many players are involved in it. You borrow in a currency that has low prevailing interest rates, like the yen, and invest in instruments in a currency […]
Read more...