Scott Sumner teaches us to “never reason from a price change” and start a step earlier.
Felix passes with his analysis of the sky-rocketing exchange rate.
[W]hat we’re seeing here is a function of ultra-leveraged hedge funds unwinding their carry trades.
In other words, getting hit by the steamroller.
Borrow Yen to invest in US bonds and cream the difference. If the Yen suddenly gets super expensive? Effing Effed.
Everyone’s freaking out, though, because spiking currency values also implies (imposes?) excessively tight money, an economy killer. Menzie Chinn reports a successful G7 intervention:
This means that, implicitly, these carry traders are getting bailed out, non?