Under Paul Volker, US interest rates were set very high, and the dollar strengthened dramatically. Oh, but you say this can’t happen. Was there not cause and effect? Cleary the Fed’s action impacted the currency exchange rates. But Japan cannot do the same?

Japan, under prodding from US, allowed their currency to strengthen – to a point.

OK, time now for some fairy tales-

China’s currency is really a different situation than Japan’s.

While George Soros and hedge funds do manipulate currencies, Japanese politicians for some reason are different than any other on earth. If the Japanese yen is shoved higher, and all Japan inc is shut down, they would stand idly by. Despite having the largest foreign reserves on earth, they would not buy dollars and sell yen, or keep their interest rates artificially low. They would just say nothing could be done because PCH says it can’t be done.

And Elvis is living in Las Vegas incognito.

And the Easter bunny is going to bring us all chocolate eggs this Sunday.

And slim gray aliens beamed PCH up for an evaluation.

Yes, certainly, but do not forget the multi-branded (MG, Austin, Plymouth Cricket…) British failure trying to sell cars profitabily in the USA.

The last failure was the purpose created “Sterling” brand, a total flop. To make things still worse, Sterlings (i.e., Rover 800s) were rebadged and British built Honda Legends, sold with great success in the USA as Acuras while Sterling failed with virtually the same car, but built by Unionized British wokforce.

http://www.austin-rover.co.uk/ (see “marques” and “Sterling”)

http://en.wikipedia.org/wiki/Sterling_%28car%29

Matt, it is not up to the US to “recognize” anything. The yen floats; the yuan is pegged. (The yuan used to be pegged to the dollar; now, it is pegged to a basket of currencies.)

What you don’t seem to understand is that no nation can manage its exchange rates to a degree that the market won’t allow. While governments can attempt to create artificially high or low rates of exchange over the short run, the market will eventually catch up to them. (Witness the implosion of Argentina, which used an exaggerated flawed method of dollar pegging that eventually collapsed the value of the peso that had been propped up arbitrarily.) You can fool the market for a short period of time, but not forever.

All that, and the yen still floats, just as the dollar floats. China and Japan are different countries, and maintain different monetary policies. They may look the same to you, but they are quite different.

“All one has to do in Google is type Chinese currency devaluation or Japan currency manipulation and you get a…”

…bunch of conspiracy websites from anonymous internet wackos who provide bad sources, misinterpret mainstream data (confusing exports with “manipulation”, for example) and generally don’t know what they’re talking about.

Type in “9/11 conspiracy” and you’ll find plenty of sites claiming that the CIA, Israeli intelligence or space aliens attacked the World Trade Center. Finding it with Google doesn’t make it true.

“You state a point over and over, with no proof to back you up, other than to state Japans cuurency has strenghened over the decades.”

The fact that the yen has tripled in value is a simple fact that is easily verified on your own. Exchange rates are easily obtained from a variety of reputable sources, and you can see that the yen has tripled in value from the rate that had been pegged under Bretton Woods.

“You have not explained why, under free trade, Japan can maintain such a massive trade surplus with the US.”

Of course I have, and it’s basic common sense: Trade deficits are created by importing more than one exports. Obviously, if you want to eliminate the trade deficit, you need to export more and import less.

The US auto industry makes cars that consumers don’t want, while the “imports” (many of which are now built in the US, and don’t contribute to the trade deficit) do make cars that we want. If you want proof of that, the falling market share of the “domestics” tells you this very plainly. (Google it if you like.)

These same cars built by the Big 2.5 are also not particularly suitable for export, given that they are not made to the tastes of most foreign markets. So it’s no surprise that they don’t sell well elsewhere.

Japan has an economic policy centered on developing export markets. It’s a great plan, but it wouldn’t work unless Japanese companies built things that others wanted to buy. Fortunately for the Japanese government, many (not all) of their companies do an outstanding job of making goods that others want to buy. Despite the rhetoric, the Japanese government can’t force exported Japanese goods down the throats of consumers outside of Japan — those companies have to earn that business. US companies need to do the same if it wants to be just as successful.

“if they were allowed to put 3000-5000 dollars more content per car, they would be more competitve.”

“Allowed”? Last time I checked, the Japanese government wasn’t on GM’s payroll and it didn’t participate in Ford’s product development. These companies have management teams that are quite capable of running their businesses into the ground without help from others.

You don’t need Google to know that if a company makes products that consumers don’t want, its sales are going to fall and the competition will get stronger. The Detroit automakers had a long and not-so-glorious history of producing products that disappointed what had once been a captive market, which gave an opportunity to their competitors to do better. Many foreign automakers failed to meet that challenge (Renault, Peugeot, Citroen, FIAT, Yugo and Daihatsu — you see, even the Japanese don’t always get it right), but some have obviously done well. Those that prospered here did so because they met US market needs, won over new customers and built brand loyalty with their products and services.

I have provided links to hedge fund manipulation.

All one has to do in Google is type Chinese currency devaluation or Japan currency manipulation and you geta wealth of articles on the subject.

You have provided zero references.
You have not explained why we should allow Japanese auto companies 3 major advantages.
You have not explained why, under free trade, Japan can maintain such a massive trade surplus with the US.

You state a point over and over, with no proof to back you up, other than to state Japans cuurency has strenghened over the decades.

As I prefer Japanese cars,I am not sure I want to argue the case for big 3 cars. However, I assure you, if they were allowed to put 3000-5000 dollars more content per car, they would be more competitve. They have to design to a price point, which, given more budget, each and every one of their cars would be nicer.

You are unable to prove it. You’ve provided no evidence whatsoever, and a fair bit of data that is simply wrong. I’ve illustrated that the yen has tripled in value since the end of currency pegging, and noted that it is the free market that is largely responsible for setting exchange rates of currencies that float, such as the dollar and the yen.

“why should we allow an unfair trading position for the Japanese?”

The only unfair trading position is the one held by the US. The US has a 25% tariff on imported trucks; Japan has zero tariff. The US has a 2.5% tariff on cars; Japan has none.

The problem with the US auto industry is that it makes cars that people don’t want. Most of these cars aren’t terribly popular here. Why would the Japanese possibly want them, when their steering gear is on the wrong side of the car, when they use more fuel, take up more valuable space and are less reliable?

The Japanese have even less reason to like our cars than we do. And as the US declining market share of the Big 2.5 would indicate, we don’t like them, either.

George Soros has done it.

Certainly the govermnent of Japan can do it. Why Congress is taking a hard look at the current exchange rate, which seems not to be based on our relative trade deficit as it should be.

http://ipezone.blogspot.com/2007/03/as-american-as-apple-pie-toyota.html
comments by Stabenow on manipulation

http://money.cnn.com/2006/04/27/news/companies/bigthree_bush/index.htm
the big 3 case to Bush
While much has been made about the dollar’s relatively fixed exchange rate with China’s yuan, the Big Three are more concerned about what they see as intervention by the Japanese to keep the yen relatively low compared to the dollar. That gives Japanese manufacturers a price advantage when selling to the U.S. consumers. Wagoner and LaSorda have both spoken out on the issue in recent months.

“Currency manipulation is adding billions to the bottom line of the Asian manufacturers,” said the auto industry source discussing the upcoming White House meeting.

Chinese manipulation:
Democratic Senator Chuck Schumer and his Republican colleague Lindsey Graham led one anti-China charge in the outgoing Congress, but dropped a threat to slap a punitive tariff on Chinese imports to give Paulson’s dialogue a chance.
In light of the latest Treasury report, they signaled in a joint statement that their patience was wearing thin.
‘The administration continues to use technical and legalistic dodges to avoid saying what everyone knows to be true—the Chinese manipulate their currency. It’s as plain as the nose on your face,’ the senators said.
‘The Chinese cannot be part of the international community on their terms alone. They need to be pressed to play by the rules and that means putting an end to currency manipulation.’
Having shelved their tariffs bill, Schumer and Graham have pledged to work with other senior figures like Baucus to find a consensual approach to taking China to task.
One bill sponsored by Representatives Tim Ryan (Democrat) and Duncan Hunter (Republican) would add currency manipulation to the list of unfair trade practices that can be punished under US trade law.
http://www.newagebd.com/2006/dec/21/busi.html

http://www.house.gov/list/press/mi05_kildee/pr_100505JPNCurrency.html
discussion on Japanese currency intervention.

There are so many references available on the internet. ALl the Bank of Japan has to do is buy dollars and sell yen.

I am incredulous anyone would make the argument Japan is not capable of currency intervention.

I would like to see a quote by any reputable economist stating that fact. Provide a reference to any Business Week or Fortune magazine article making that point.

Incredible!

For a free subscription to John Mauldins newsletter. He answers personal email.

I do not have to prove to you Japan is manipulating prices in these few words -because clearly your mind is closed. I am sending this information for those with open minds.

And your last statement “They are already making the cars here. An Ohio-made Honda does far more to reduce the trade deficit than does a Mexican-built Chrysler or a Korean-built Chevy.”

Who said they were not making cars here? I was merely saying domestic production does not have to be the big 3.

And you never addressed the key points – why should we allow an unfair trading position for the Japanese? And why not insist on an exchange rate that gives an essentially zero trade deficit? Again, no one is saying the Japanese have to buy Detroit cars.

But my comments are for others who are objective. You are not.

That’s about as clear as mud. I don’t see any evidence that Japan does anything more to “manipulate” anything than does any other country that also has a floating, convertible currency. Holding dollars in its treasury or trying to export goods is not a sign of “manipulation.”

“Clearly China has done the same, but with different techniques.”

Unlike the yen, the Chinese yuan is NOT a floating currency. Apples and oranges.

“Japan has stated they cannot live at 90 yen to the dollar. Do some homework.”

You continually confuse the desire to have a moderately valued yen with the ability to actually do something about it. Ultimately, it is the free market that determines the value of the yen.

“I never said which companies would make the cars in the US.”

They are already making the cars here. An Ohio-made Honda does far more to reduce the trade deficit than does a Mexican-built Chrysler or a Korean-built Chevy.

Clearly China has done the same, but with different techniques.

The large deficits we have are unsustainable.

How are you going to pay for your Japanese/Chinese imports? (not counting transplants largely made in US).

I never said which companies would make the cars in the US.

It may be Hyundai.

But we cannot continue to import goods and pay with paper money. So which goods must be made here, and which must be imported?

Nothing is made in China that we cannot make here.

Nothing is made in Japan that we cannot make here.

More and more, we are even importing large amounts of food. We must import oil and minerals. As China starts making large airliners, what do we have left to export to pay for what we need?

By not insisting on currency exchange rates that provides zero deficits with Japan and China; our goverment has created an unstable situation. Even if we chose to start making many of the goods we import, we no longer have the engineers, tool and die makers, and so forth.

We are now dependent on the goodwill of China and Japan to fund our trade deficits. If they slow down their purchases, we have a dollar collapse.

And, by having the yen where it should be, the 2.5 would be far more profitable. This is not a level playing field.

The big three have three major unfair disadvantages: Currency manipulation; having to pay for health care that is provided by the government in Japan; and rebates of value added taxes.

I too prefer Japanese cars, but I do not have a blind hatred of the big 3. Let there be a level playing field. Hyundai may win it all, who knows?

Japan has stated they cannot live at 90 yen to the dollar. Do some homework.

Every nation in the western world “worries” about these things. The thesaurus would indicate that “worry” is not even close to being the same thing as “manipulation.”

“We can make cars. We can’t make enough oil. Which should we make, and which should we import?”

If we are to reduce the trade deficit vis-a-vis automobiles, then we need to build cars that we want to buy.

So far, it’s Toyota and Honda who seem to be doing the best job of this. Their most popular models, that sell in the highest volumes, are built in the NAFTA zone, primarily in the US.

And because their cars are more fuel efficient than those built by the Big 2.5, they allow us to import less oil. Buying a typical “domestic” vehicle simply increases US dependency on foreign oil and increases the trade deficit further still.

In any case, a weak dollar is not particularly good for the US economy, given the degree to which we are dependent on imports with no chance of changing that dependency. To go back to the BBC, here’s an explanation as to how the dollar has gotten to where it is. (In summary, it’s a reflection of the market’s expectations for US economic performance, not based upon what Japan allegedly manipulates: http://news.bbc.co.uk/2/hi/business/4772049.stm

US dollar depreciation does not guarantee sale of US cars. It does reduce the deficit, though not necessarily short term, by making it more attractive to invest in the US. Maybe more transplants would locate here, or more farm goods exported. But ultimately, with free trade, trade deficits should be eliminated.

euros per US dollar – 0.7964 (2006), 0.8041 (2005), 0.8054 (2004), 0.886 (2003), 1.0626 (2002) https://www.cia.gov/cia/publications/factbook/fields/2076.html

That´s a 20% depreciation of the U.S. Dollar Vs. the Euro in four years, or 4000 Euros (or Dollars) per 20000 Euros (or Dollars) car.

If I remember well, the U.S. dollar depreciation since 2000 is still worse.

Despite this huge exchange advantage, U.S. manufactured cars are still a rare sight in Spain: Many Jeeps and PT cruisers, a few Voyagers, a few, few Cadillacs, a pair of Hummer H3 and Dodge Calibers and that´s it.

I have not seen a single Corvette in Spanish streets, and Corvetts here have thoy own separate “Cadillac, Corvette, Hummer” dealers.

Uh. And “Chevrolet” in Spain is now a bargain basement brand on the hood of former Daewoos and Pontiacs are not sold here any longer (some Pontiac Trans Sport vans were sold in the 1990s).

In fact I have the impression I see more American cars in the Spanish streets from the 1990s than 21st century American cars: Cirrus, Stratus, Neon (lots of Neones…please do not ask me why), Saratoga, Alero, Voyager…even a few Eagles.

As a fairly avid reader of the business press, I can fairly repudiate that claim. The currency manipulation charges are populist and political rhetoric, but your average economist would dispute it. As for Mr. Maudlin, he’s just one guy of a billion who writes a newsletter, which doesn’t make him a definitive source on the subject.

The answer lies in the data — the yen is 300% stronger than it used to be. To illustrate how manipulation is not feasible, Japan cooperated with the US during the 1980’s when Reagan attempted to weaken the dollar in order to improve the US trade deficit. Not only did that move not help the trade deficit, but the dollar eventually returned to its proper value, and went on within a decade to soar in value, thanks to its economic strength.

The free market establishes the value of the yen and the dollar, first and foremost. If you want to reduce the trade deficit, then the solution is to import less. Obviously, we aren’t willing to do that.

Meanwhile, Japan has endured a lengthy recession, and is certainly no benchmark of prosperity. Its low interest rates are largely indicative of the absence of growth in its economy and a banking system that can’t swing with the times.

While Japan makes a concerted effort to run trade surpluses, they succeed at this only because their companies produce stuff that we want. If they made schlock that didn’t meet consumer needs, then they’d probably be in the same import-hungry boat that the US finds itself in today.

During the 1960’s, they weren’t in a position to do any such thing, because the pegging was set by Bretton Woods, not by Japan.

And again, since the collapse of Bretton Woods, the yen has not weakened against the dollar, but has strengthened by a factor of three times. (Y360 to $1 back in 1971, versus about Y120 today.) If that’s manipulation, then they need to get some better manipulators, as they obviously aren’t very good at it.

Today, the US dollar and the yen are both fully convertible, floating currencies. The free market sets their values. While all governments attempt to manage the value of their currencies to some extent, they have very little ability to do so, because the free market is too large a force for any government to override.

If you want to reduce US imports from Japan, then you had better get American industry to produce products that don’t need to be imported from Japan. At this juncture, Japan is not a low-cost labor market; the only reason we buy Japanese goods in this day and age is because we prefer them to the US alternatives.

If US companies can’t or won’t compete, we have only those companies to blame. You can’t fault the American consumer for wanting a better mousetrap, and you certainly can’t fault the Japanese for being smart enough to build a mousetrap that works and fits the bill.

What you write is accurate. I never said the Japanese started manipulating the yen in the 1960’s. I said it was very undervalued then. The manipulation started later. The Japanese have been very open about their efforts to control the rise of the yen, what John Mauldin refers to as a “competitive currency devaluation”.

During the 1960’s, there were no floating exchange rates. The value of the yen, mark, pound and other currencies were pegged to the US dollar under the Bretton Woods system.

The Japanese weren’t doing anything to weaken the yen during the 1960’s. Between 1945 and 1971, the yen was pegged into the dollar at a constant rate of Y360 to $1.00, and stayed constant until the collapse of Bretton Woods in the early 1970’s.

Walter Reed is not a failure of socialized medicine, it is a measure of greed that an Administration favors tax cuts for the wealthy over funding health care for veterans.

Matt51,
If you looked at the budget for Walter Reed and for VA benefits in general you would find that there was more than enough money for care. The problem wasn’t tax cuts – and by the way since those tax cuts were made revenue has INCREASED due to a growing economy – the problem was buracracy – the same buracracy you and I and everyone else will face if the politicians get a hold of health care.

You know how it’s ironic that the Japanese learned statistical quality control from an American (Demning) and then used it to make great cars? Well, the original idea of tax cuts to spur economic growth and therefore produce more tax revenue (supply side economics) came from a Democratic icon – JFK. He proposed tax cuts early in his administration and his own treasury dept predicted that revenue would fall to the federal government. But an amazing thing happened. Revenue increased – and some people noticed this, but they weren’t from JFK’s political party. When Reagan cut taxes it doubled revenues – but then the congress just spent more. It would be like me saying I’m gona give you a $50 raise a week and you start spending $75 a week more than before the raise. Then you come back and blame me when you find yourself in debt. So they blamed Reagan for there own lack of fiscal discipline. I’d like to say this is the problem of one party but as we all saw in the last congress they just can’t help themselves. Back in 1995 when I saw the amendment for a required balancing of the federal budget fail by one vote to reach the needed 2/3 majority I knew that we would be eventually doomed. It might take years but without total overhauling of our tax and spend system including social security it’s just a matter of time just like it is with domestic automakers. And Spanish Guy – you rock!

Mike – I would say the US manufacturer’s financial/MBA based management has been clearly inferior to the Japanese engineering based management. Read Maryann Keller’s 1989 book “Rude Awakening”.

I’m not trying to justify the big 2.5, just explain what happended. The margins have never been that big in this industry. But between CAFE costing the US makers billions per year and the Japanese zero, legacy pensions and retiree health costs not born by the Japanese, worker health costs not existing in Japan and lower for thier lower age US workers, pissed off labor, it is a wonder the big 2.5 lasted this long.

A lot of people on this site like to rail against the bug 2.5 management. They are not perfect, but are as good as any out of the US engineering and business schools, and they come from the best, in my opinion. Given the game the way it has been played in the last 30 years, I think it is amazing they lasted this long.

So the dollar has actually fallen in value against the yen by about 57% over that period. These alleged “manipulators” must be thick as bricks, because they are actually achieving the opposite result — the long-term trend has been for the yen to strengthen, not weaken.

It should be obvious from this factoid alone that the claims of manipulation are purely bogus. It should be equally obvious why some of the Japanese automakers are prospering in the US — they make products that American consumers want to buy. If the Big 2.5 want to turn loss into profit, then they better damn well get to work in making stuff that is worth buying.

If the Japanese treasury carries a large quantity of dollars, that’s largely because (a) practically every nation in the world holds dollars as their major “reserve currency”, and (b) it is the end result of being good at meeting foreign tastes with your exported goods.

Incidentally, between the US and Japan, only one of them has tariffs on imported cars. Care to guess who it is? (Hint: It isn’t Japan…)