September 16, 2003

The Endgame for the U.S. Current-Account Deficit

Kevin Drum interviews Paul Krugman, and in the course of the interview Krugman thinks about the end of the U.S. trade deficit:

CalPundit: An Interview With Paul Krugman: What happens if these foreign countries do stop buying U.S. bonds? Is this a real concern, or a tinfoil hat kind of thing? Oh, I don't think China is going to [stop buying U.S. bonds in order] to pressure us. You can just barely conceive of a situation where they're mad at us because we're keeping them from invading Taiwan or something, but more likely they just start to wonder if this is really a good place to be putting their money. So what happens is a plunge in the dollar when they decide to stop buying and start cashing in, and a spike in U.S. interest rates. But you might also get in a situation where the interest rates the government has to pay to roll over its debt become so high that you get an accelerating problem, which is what happened in Argentina. What happened was that suddenly no one would buy Argentine debt unless they paid a twenty something percent interest rate, and everybody says, but if they have to roll over their debt at a twenty percent interest rate, there's no way they can pay that back. So the whole thing grinds to a halt and the cash flow just dries up.

And do you think that's a serious possibility for the United States? Yeah, just take the numbers as they now look, and that's where it heads. And you might say, OK, we can easily handle it. U.S. taxes are 26 percent of GDP in the U.S., in Canada they're 38 percent of GDP. If you raise U.S. taxes to Canadian levels there's plenty of money to cope with all of this. But politically we've got a deadlock, and it's hard to imagine that happening. So you say, but this can't happen, this is America, and I guess my answer is, is it? Is this the same country that we had in 1970? I think we have a much more polarized political system, a much more polarized social climate. We certainly aren't the country of Franklin Roosevelt, and we're probably not the country of Richard Nixon either, so I think we have to take seriously the possibility that things won't work out this time...

The U.S. current account deficit is unsustainable, and as Herb Stein used to like to say, if things are unsustainable they will stop. I used to think it would stop as demand in the rest of the world grew and demand for U.S. exports grew along with it. That's becoming less and less likely. So I have to agree with Paul that the current-account deficit will end one day when foreigners decide that the U.S. is not a good place to put their money, and the dollar falls in value by somewhere between 25% and 50% in a relatively short period of time. If Bush is reelected and continues his feckless fiscal policies, my bet is that this dollar crisis comes between three and five years from now.

What consequences does such a shift in capital flows and a collapse in the dollar entail? I do find myself much more optimistic than Paul Krugman. A large chunk of the U.S. net foreign indebtedness is nominal and is denominated in dollars. The end of confidence in the American economy and the drying-up of the capital inflow leads to a very rapid and steep decline in the dollar, yes. It leads to a rapid fall-off in imports, yes (and to a slower expansion of exports). But the further the dollar falls, the more U.S. gross indebtedness to foreigners shrinks. So I think (unless New York banks' derivative positions are such as to bankrupt them all if the dollar collapses) the landing is a relatively soft one, as opposed to the brutal hard landings of Argentina at the start of this decade or East Asia and Mexico at the middle of the last one.

My bet is that interest rates spike for a little while in response to the dollar collapse, and that the U.S. undergoes a small recession, but that within a couple of years the macroeconomy stabilizes and unemployment never goes very high.

The real disaster scenarios for the U.S. economy are further out: they come when politicians try to tell the baby boomers that the combination of the tax cuts of the 2000s and the failure to address entitlement spending growth means that they don't get their Medicare, their Medicaid, and their Social Security.

Posted by DeLong at September 16, 2003 01:23 PM | TrackBack

Comments

What would happen to the price of oil (much of it imported) if the dollar collapsed? Would the price skyrocket? Would the energy price shock send ripples through the economy. I don't think fiscal policy that results in a dollar collapse is a good idea.

Would we be in danger of returning to early 80s levels of inflation and interest rates? The old folks would be happy to go back to CDs that pay over 10%.

Posted by: bakho on September 16, 2003 01:44 PM

Explain this again to a non-economist. How is it possible that the price of the dollar goes down 1/4 to 1/2 and it doesn't, um, destroy Americans' spending power? Wouldn't oil prices basically double? Wouldn't everything we import double in price? Wouldn't that have the effect of cutting our salaries by, if not 1/4-1/2, than a considerable fraction? I'm just not getting you here. I fail to see how "the dollar fall[ing] in value by somewhere between 25% and 50% in a relatively short period of time" is not a huge, huge deal that will adversely effect our economy for years and years. Is the value of a currency in real-world term not that meaningful?

Posted by: Mitch Schindler on September 16, 2003 01:49 PM

Explain this again to a non-economist. How is it possible that the price of the dollar goes down 1/4 to 1/2 and it doesn't, um, destroy Americans' spending power? Wouldn't oil prices basically double? Wouldn't everything we import double in price? Wouldn't that have the effect of cutting our salaries by, if not 1/4-1/2, than a considerable fraction? I'm just not getting you here. I fail to see how "the dollar fall[ing] in value by somewhere between 25% and 50% in a relatively short period of time" is not a huge, huge deal that will adversely effect our economy for years and years. Is the value of a currency in real-world term not that meaningful?

Posted by: Mitch Schindler on September 16, 2003 01:58 PM

This seems like a pretty good argument for protectionism. If we should expect a 25% to 50% devaluation of the dollar in the near future, doesn't that mean that any off-shoring of labor that yields less than 25% cost reduction is a mis-allocation of resources?

msw

Posted by: msw on September 16, 2003 02:03 PM

The Krugman comment that I found most curious was his estimation of the US's ability to support higher taxes to cover the deficit spending. Specifically he said

"OK, we can easily handle it. U.S. taxes are 26 percent of GDP in the U.S., in Canada they're 38 percent of GDP. If you raise U.S. taxes to Canadian levels there's plenty of money to cope with all of this."

The analogy seems flawed, first because our economy and demographics are very different than those of Canada. Secondly because Canada has socialized medicine. I am not sure what percentage of GDP that (non-medicare/medicaid) medicine consitutes, but the gap of 12% that he points to as our capacity to be taxed more might not be so "easily" handled.

Posted by: dave on September 16, 2003 02:15 PM

Dave,
You are exactly right. A study was done by the federal governemnt of Canada to evaluate the nations international competitiveness relative to the other members of the OECD.

What they found was that once Canada's entitlement programs are accounted for; especially Medicare (ie socialised medicine), our taxation levels are almost equal to the United States. A 1% gap.

Mind you this was before the Bush tax cut, so that has open up a bit of a gap, but the conclusion remains the same. Tax increase while absolutely necessary to the fiscal health of the United States can not be seen as "easy".

Although Canadian taxes are much much more progressive than American taxes. So if the American governemnt concentrates its tax increases on the top 20% maybe it is easy. Perhaps Krugman is alluding to this without saying so.

Posted by: Scott McArthur on September 16, 2003 02:39 PM

i don not understand what you mean by " a large chunk of u.s. net foreigned indebtedness is nominal and is denominated in dollars." what does
"nominal" mean here, as opposed to dollar denominated? surely not "unreal"? are you referring to it being parked in u.s. bonds in fed accounts? then when these accounts would be liquidated, would it not mean an increase in the money supply in the u.s.a. and a tightening of the money supply in foreign countries whose central banks are selling of these bonds? and further more, would not such a large sudden devaluation in the u.s.$ -(this is what brazil recently experienced, a drop of its currency value from 2 to 1 to 4 to 1 before going back up to 3 to 1)-mean an end to cheap foreign good, thus
a rise in domestic production prices as the restraint of foreign competition was lifted, thus a sharp rise in inflation, and thus a sharp rise in nominal interest rates together with a rise in real interests rates to keep the dollar from collapsing further, and thus to a choking off of domestic demand as well as financial crises due to
many being caught with interest rate inverted holdings at the formerly low rates? and does not the bush progam with defidits in the $400 billion
range for the next decade imply the at least half of this would be foreign financed and thus such deficits would be completely unsustainable without
sharp tax increases or crowding out domestic private investment, in a situation of deficient and declining demand? and why do you say,"the further the dollar falls, the more u.s. gross indebtedness to foreigners shrinks"? is this because the real value of the dollar has declined and thus the foreign exchange earnings needed to redeem the debt has lessened or because of the rise in u.s. exports or both? and what becomes of the role of the u.s.a. in sustaining world demand, skewed as it already is? where is new demand to come from, (other than it somehow always does)? this all sounds to me like a recipe for the return of stagflation.

Posted by: john c. halasz on September 16, 2003 03:16 PM

"How is it possible that the price of the dollar goes down 1/4 to 1/2 and it doesn't, um, destroy Americans' spending power?"

Because only 10% of the stuff we buy comes from outside the country.

Posted by: Jason McCullough on September 16, 2003 03:24 PM

I agree with Prof Delong, the Chinese won't decide to put their money elsewhere until they have their country sufficiently developed.

So buying oil in yuan and notifying U.S. taxpayers that their entitlements are cancelled, could be concurrent events.

Posted by: David E on September 16, 2003 03:38 PM

The questions raised by John Halasz and by David E are most interesting. The impact of the scenario is very negative for the US financial institutions and for US final consumption demand. Also it is likely that the yield curve will invert (short rates higher than long rates) towards the end of the excercise. THe problem is timing; one cannot stay short for 3-4 years without getting burned in the meantime, and it is very difficult to invest in this scenario. A question I have for Prof. De Long is: what are leading indicators that the vise is tightening on the foreign flows to the US credit market? Flow of money statistics are published quarterly, but you see the action on interest rates first. In other words other than watching the trend in US interest rates, are there any other indicators that point to the timing of a squeeze on US liquidity/credit?

Posted by: g.scarampi on September 16, 2003 04:30 PM

You are still making the same two mistakes. 1)you keep trying to call an economical Crash a recession. (forget the NBER definition of a recession) 2)Just because the DEBT is not in a foriegn curencey, does not mean there won't be an economical Crash. The economical crash is caused by (the inability or the supposed inability to survice the DEBT.) About 3 years after the crash there is another 20/45 percent crash, whitch kicks off the "laymans recession." Right at the moment, the USA economy can go four different ways. 1)Deflation. 2) post 1987 crash (low interest rates)3)Stagflation post 1974 crash. 4)Hyper-inflation. The softest case will be number 2. Now if no one will buy US treasuries, then we would get eather stagflation or Hyper-inflation. You economists keep saying "inflate the DEBT away", we would be very lucky to get stagflation that way. Most likely, Hyper-inflation given the way "Both" political parties have "criminaly mismanaged the economics of the government." Actualy, the best long term senario, for the "people" would be Deflation. This would return the purchasing power of the salaries, thus incresing the standard of living of people, without salary increases. Any crash or recession is bad for the people who lose their jobs/businesses. The US government would have to take Dollars out of America to pay back the foregners who bought the US Tresuries. Also the government would be forced to Slash spending. Like what all governments do, they would Mismanage the HECK out of the whole fiasco, that they actualy created over the last 40 some odd years by their criminaly borrowing money to buy votes. Do you really think that "ANY" American government will make the nessary sacrifices to make the Crash/Recession a soft landing for the people of America????? Heck, they won't cut the hundreds of departments,(the rice bowls and power bases for the mis-representatives in the sen. and con.) that would cut government spending by between 150 and 250 billion dollars a year! (see Allen Keys) to top everything off, the libral media is giving the world the bad impression that America is divided and weak. Economical translation: America suffers the "inability or supposed inability to service their DEBT." As you say, they will find another place to put their money. Conclusion: America has the very high potential of going into some really bad economical times.

Posted by: Jim coomes on September 16, 2003 05:51 PM

You are still making the same two mistakes. 1)you keep trying to call an economical Crash a recession. (forget the NBER definition of a recession) 2)Just because the DEBT is not in a foriegn curencey, does not mean there won't be an economical Crash. The economical crash is caused by (the inability or the supposed inability to survice the DEBT.) About 3 years after the crash there is another 20/45 percent crash, whitch kicks off the "laymans recession." Right at the moment, the USA economy can go four different ways. 1)Deflation. 2) post 1987 crash (low interest rates)3)Stagflation post 1974 crash. 4)Hyper-inflation. The softest case will be number 2. Now if no one will buy US treasuries, then we would get eather stagflation or Hyper-inflation. You economists keep saying "inflate the DEBT away", we would be very lucky to get stagflation that way. Most likely, Hyper-inflation given the way "Both" political parties have "criminaly mismanaged the economics of the government." Actualy, the best long term senario, for the "people" would be Deflation. This would return the purchasing power of the salaries, thus incresing the standard of living of people, without salary increases. Any crash or recession is bad for the people who lose their jobs/businesses. The US government would have to take Dollars out of America to pay back the foregners who bought the US Tresuries. Also the government would be forced to Slash spending. Like what all governments do, they would Mismanage the HECK out of the whole fiasco, that they actualy created over the last 40 some odd years by their criminaly borrowing money to buy votes. Do you really think that "ANY" American government will make the nessary sacrifices to make the Crash/Recession a soft landing for the people of America????? Heck, they won't cut the hundreds of departments,(the rice bowls and power bases for the mis-representatives in the sen. and con.) that would cut government spending by between 150 and 250 billion dollars a year! (see Allen Keys) to top everything off, the libral media is giving the world the bad impression that America is divided and weak. Economical translation: America suffers the "inability or supposed inability to service their DEBT." As you say, they will find another place to put their money. Conclusion: America has the very high potential of going into some really bad economical times.

Posted by: Jim coomes on September 16, 2003 05:55 PM

g. scarampi,

Maybe we are looking for the same thing, trying to understand events to build a safe portfolio position. I am nervous because it seems our recent history will not look like our future.

Prof Delong's prediction that China/Japan will continue to hold dollars is reassuring.

Posted by: David E on September 16, 2003 06:01 PM

Brad DeLong writes:
> But the further the dollar falls, the more U.S. gross
> indebtedness to foreigners shrinks. So I think (unless New
> York banks' derivative positions are such as to bankrupt
> them all if the dollar collapses) the landing is a relatively
> soft one,

[snip]

OK, so I'm not an expert in derivatives, but isn't it the case that almost *any* sufficiently large shock would cause somebody's hugely leveraged position to unravel? If so, the chain reaction of selling essentially illiquid securities could lead to a pretty brutal uniwinding, and and the contagion could spread pretty far indeed. I know that we've been pretty luck with such things so far, but we've never had a 25-50% overnight devaluation of the dollar either. Should I assume that the Fed has an on-the-shelf emergency plan about what to do if a major money center bank goes insolvent? The lore (and tell me if I'm wrong) is that Citibank was essentially insolvent at one point in the very early 90s, and it was only the gravy train of a cheap overnight rate and T-bills at 7+% that pumped everybody back up again.

I guess it's still in the class of events that I would work very aggressively to avoid.

Posted by: Jonathan King on September 16, 2003 07:40 PM

No one's commented on one part of Krugman's remarks, so allow me ! He calls attention to the "polarized" political environment. This seems to be another case of Krugman telling the driver to step on the gas and then remarking, "Oh we're going over the cliff."

Both sides - naturally - have contributed to the polarization. One calls the other "unpatriotic," the other calls the one "stupid" and a "liar".

Either we all hang together, or we will all hang separately.

Posted by: Andrew Boucher on September 16, 2003 11:58 PM

"But the further the dollar falls, the more U.S. gross indebtedness to foreigners shrinks."

So this might soften the landing in the US, but wouldn't it also export some of the hard landing elsewhere, thus giving the thing a global dimension? This part is a zero sum game. (And then those worst hit - Europe? - wouldn't be so well positioned to buy the cheaper American exports, so the US would have trouble with growth, etc, etc).

And what does this do for the future of the 'reserve currency'. All in all, a very complicated picture.

"What they found was that once Canada's entitlement programs are accounted for; especially Medicare (ie socialised medicine), our taxation levels are almost equal to the United States"

This highlights the weakest part of K's argument: the ex-US part. Canada, EU, Japan etc are all facing demographically related problems. Pedro Solbes - EU economics Commissioner - has gone on record as saying that the public finances of half the EU member states are unsustainable mid-term. This means crisis, just like the US. The problem is there is no GWB involved, so it isn't so interesting. Simply looking at this as a political issue has to be flawed.

Posted by: Edward Hugh on September 16, 2003 11:59 PM

BTW: One of K's best NYT columns as far as I'm concerned was 'the fear economy'. This dealt with the parrallels between Japan and the US. Why are we suddenly talking Argentina? The Japan example is much more to the point, and K would do well to follow the line of enquiry he started there - both in terms of similarity and difference, and to look at the different ways the ageing thing is working out in each case. But then maybe GWB wouldn't get the star role.

Posted by: Edward Hugh on September 17, 2003 12:52 AM

Crashes and panics are things that happen when investors are SURPRISED, not when they adjust to a slow-motion event like the 30-year buildup of US foreign debt. Economists have been crying wolf on this issue since at least 1980 and it has yet to produce a disorderly adjustment. Pre-announced events cause GRADUAL adjustments, not dislocation.

Posted by: Peter vM on September 17, 2003 12:56 AM

http://www.guardian.co.uk/comment/story/0,3604,1043494,00.html
The Guardian: US economic folly should worry us all: Joseph Stiglitz

Posted by: rdb on September 17, 2003 01:38 AM

> I do find myself much more optimistic than Paul
> Krugman. A large chunk of the U.S. net foreign
> indebtedness is nominal and is denominated in
> dollars. The end of confidence in the American
> economy and the drying-up of the capital inflow
> leads to a very rapid and steep decline in the
> dollar, yes...

This is too easy. Paul is fully away of the difference beween Dollar and Euro denominated debt and the advantages of a reserve currency, so saying this is not enough to convince me that he is wrong. To convince me, you have to tell me why he thinks this is not enough to avoid the problem, and then what you would say in return.

Posted by: Sean Matthews on September 17, 2003 04:56 AM

bill gross sees the same endgame...

http://www.pimco.com/IO/Sep03/Index.htm

"Chart III shows the potential for Chinese water torture in two different forms. First since its monthly trade surplus of $10 billion+ with the United States implies a $120 billion annual addition to its dollar reserves, there will come a time when their hundreds of billions if not a half trillion or so in holdings of U.S. notes and bonds look a tad too risky. In turn the hundreds of billions that the Japanese and other Asian countries have been buying in order to keep their currencies competitive with the Chinese Yuan (Renminbi) and the U.S. dollar will be subject to a sanity check as well. The currency/bonds/ stocks of a reflating economy engaged in guns and butter, Hummer and Hummvee spending of near historical proportions are bad investments. Sooner, perhaps later, our Asian creditors will wake up and smell the coffee. Perhaps their java will take the form of dollar or Treasury Note sales. Perhaps the aroma will resemble a revaluation of the Yuan and then the Yen. Either way we pay the price: higher import costs, a cutback in spending on cheap foreign goods, rising inflation, perhaps chaotic financial markets, a lower standard of living. Mark these words well for what they’re worth (not much some will say): China holds the keys to our kingdom, and our Hummers. Their willingness to buy our bonds, their philosophy of fixing their currency to the U.S. dollar will one day be tested. And should their patience be found wanting, all of their neighboring Asian China wannabes will move in near unison. Reflation’s second round will have begun, U.S. interest rates will rise, our goods in the malls and the showrooms will be less affordable, and the process of national belt tightening and increased savings will have begun."

Posted by: dirk on September 17, 2003 06:16 AM

i can see it happening slightly different! for my part :D

if you take it back a little further and ask what might trigger central bank sales of US paper (a "run on the dollar") you don't have to ascribe it to nervous bankers fretting they're holding too much US guvvies and that they're not diversified enough.

take it up the chain to the US mortgage market, where central banks have also been big buyers. freddie and fannie are by no means transparent (hence the shakeup) and a derivative blow-up (or whatever) could start the reaction. or more mundanely, it could be attributed to a creeping rise in mortgage deliquencies, which are already starting to inch higher... just as unemployment rises.

still another angle, is simple trade symmetry. if central banks' reserves are mostly in dollars, but the country's international trade position is mostly in yen and euros (or something), then it makes sense to bring them into better balance. the point is you wouldn't announce these sales to the world, but do it quietly and discreetly over time...

Posted by: dirk on September 17, 2003 06:51 AM

Andrew:

If one side lies, what should the other side say? Do you deny that Bush has lied about his own economic policies, or do you think that he did but saying so out loud is "polarizing"?

Krugman's so-called shrillness has developed gradually, as he has been confronted with an administration that makes objectively poor economic decisions and then lies about them, and a press corps that seems willfully blind to the situation.

The car that's going over the cliff isn't politeness in American political discourse - it's the economy. And Bush's actions will send it over the cliff whether PK talks about it or not. PK just hopes that talking about it might convince someone - anyone - to grab the wheel out of Bush's hands.

But, as always, people like you, Broder, and the whole lot of them over at Slate care more about politeness than where the car is going, and why.

How far does Bush have to go before you all decide that it's acceptable to speak about it honestly? It's obvious from your contribution to this discussion that mere catastrophic national insolvency isn't enough.

Posted by: JRoth on September 17, 2003 09:16 AM

i can see it happening slightly different! for my part :D

if you take it back a little further and ask what might trigger central bank sales of US paper (a "run on the dollar") you don't have to ascribe it to nervous bankers fretting they're holding too much US debt and that they're not diversified enough.

take it up the chain to the US mortgage market, where central banks have also been big buyers. freddie and fannie are by no means transparent (hence the shakeup) and a derivative blow-up (or whatever) could start the reaction. or more mundanely, it could be attributed to a creeping rise in mortgage deliquencies, which are already starting to inch higher... just as unemployment rises.

still another angle, is simple trade symmetry. if central banks' reserves are mostly in dollars, but the country's international trade position is mostly in yen and euros (or something), then it makes sense to bring them into better balance. the point is you wouldn't announce these sales to the world, but do it quietly and discreetly over time...

Posted by: dirk on September 17, 2003 11:06 AM

whoa!

Posted by: Dirk on September 17, 2003 11:11 AM

The economy of Europe is on the same cycle as America. They are stagnating. South America is just alittle ahead of America, they are showing some sign of improvement. Japan??? could go back into...no groth. Thailand is just bordering on the verge of the next bubble. It's ready to take off economicaly. Asia on the whole is about 3 years ahead of America. All this on the 13 year Crash Boom cycle. America is STILL the major economical groth engin of the world. If America goes down in the next 6-12 months by about 20-45 percent (stock market) like it does apx. 3 years after the start of "every" econimal crash, this will really slow down the recovery of every country in the world!!! Every country in the world is- in, or just comming out of the Crash, recession cycle. The US government/taxpayers are in reality financing the worlds econmical groth by borrowing the foriegn money (in dollars) and spending them all over thus buying the foriegn imports ect. Now, what happens to America when it can't borrow the money?? What happens to the world when it doesn't buy the imports? What country becomes the next engin of economic groth?

Posted by: Jim Coomes on September 17, 2003 05:06 PM

Now, what happens to America when it can't borrow the money??

The Chinese first of all would go bust, their entire prosperity depends on US imports, in turn they deposit their earnings in TB's to support the US consumerism, the present deficit and import – export game is not a zero sum game but a positive cycle, the US remains the growth engine of the global economy with the aim that many don’t understand that of creating new buyers by exporting American way of life! The new riches bring new habits of films that are made in Hollywood, the need of keeping in universal contact that is fed by coalition of MFST-INTC-DELL and CSCO, the basic requirement to feel healthy and remain healthy that is fulfilled by pharmaceuticals that are predominantly American, the best cocktail for Aids is not made by Europeans or from Alzheimer’s to Parkinson to ordinary blood pressure the intellectual property rights and innovation rights are owned by US companies, the richness of the old poor nations of the east are inflicting on them US habits, life style and similar health problems and for that once new consumers with massive appetite are being added I see no threat of so called unsustainable phenomenon of financing the deficit. The wave of new America habits loving consumers sadly for me appear no where on any economic pundit studies! They abuse Americanism every day in Middle East over super big cups of Starbuck coffees, hating America is fun talk living the style is the walk the talk.

The ‘mother of all exports’ and the strongest of all commodities is the ' The American way of life,' new Chinese and emerging noveux riches in sub-continent are styled in unabashed US consumerism, US is creating a huge market outside US in region of billion people who depend on US products like Starbucks for their coffee and big Mac for their lunch, sushi are out and US empire has done what no one lese has ever done, create a billion new consumers without taking their retirement responsibilities, the trade deficit is a big plus as far as new outposts keep creating new global frontiers where American way of life is the way to go, from Tianman Square to Red Fort in Delhi the 400 million plus new middle class just in these two countries is going to become the next baby boomers, no one but American exporters of services and medicines and food will benefit from this huge rise of middle classes in China, the fact is that US deficit is a small price in terms of keeping world economies to grow but the real goal that is not appreciated by any Krugman is that all these are adding to a new consumer class that underpins future US economy, a new Europe is emerging from consumerist habits of Americans from the ashes of poverty of China and India, this could not have been possible or could not have been created by any Europe, the US deficits is the most intelligent policy ever devised by any global empires, it arouse out of natural selection because freedom and hoping for better life is a way we all want to adopt.

A new ASEAN baby boom is the future I see, it is in the interest of China to finance this deficit not for Taiwan that is silly argument, theirs and the 586 billion dollars of Hong Kong reserves do not at the moment have a place that has appetite for this kind of placement and parking, the R&D of US companies and consumerism of US public decontaminates the global economic system and provide their capital an oasis of suability and a market, America in return is creating millions of new American every day who like their lifestyle and may disagree with their politics. It is all about creating markets blessed enough to pay for the future intellectual rights of US corporate, the strangle hold of the American corporate on the global markets has a premium of more than present global GDP. The few hundred billion of deficit is a small change if it is compared to collateral benefits of creating a billion new customer in emerging markets, imagine a world that is totally littered with poverty, a rich India and a rich China benefits no one lese but US, US instead of launching a Marshall plan to create consumers helps them t create prosperity by exporting industry that is inefficient within US borders but makes perfect sense for people on the lowest rung of the ladder, the two are in twined the interests are forged and this link economists like Krugman cannot see!

The free spree spending of Americas has brought the benefits of lower prices on the Mall shelves but for Chinese from 1972 few billion dollar reserves to 356 billion today and massive increase in life style was only possible if US stayed the course, it is naive to assume that Chinese or Aseans will withdraw their funds from US, the liquidity arising from such withdrawals has no place for parking, overheating is a challenge that Chinese are still facing, same with India the new reserves of 100 plus billon has created a new middle class that loves American values although US bashing may be a common slogan after a dose of lipitor, a big meal at Taco bell and double cream Mocha cold from star buck, every time the new rich middle class steps on to the new world the tills at the US corporate in US start ringing, for every cent the new generation spends their is a cent of royalty for US corporations, this non sense of unsuitability of US deficit is cry of theoretical economists.

Posted by: Iqbal Latif on September 18, 2003 01:44 AM

Now, what happens to America when it can't borrow the money??

The Chinese first of all would go bust, their entire prosperity depends on US imports, in turn they deposit their earnings in TB's to support the US consumerism, the present deficit and import – export game is not a zero sum game but a positive cycle, the US remains the growth engine of the global economy with the aim that many don’t understand that of creating new buyers by exporting American way of life! The new riches bring new habits of films that are made in Hollywood, the need of keeping in universal contact that is fed by coalition of MFST-INTC-DELL and CSCO, the basic requirement to feel healthy and remain healthy that is fulfilled by pharmaceuticals that are predominantly American, the best cocktail for Aids is not made by Europeans or from Alzheimer’s to Parkinson to ordinary blood pressure the intellectual property rights and innovation rights are owned by US companies, the richness of the old poor nations of the east are inflicting on them US habits, life style and similar health problems and for that once new consumers with massive appetite are being added I see no threat of so called unsustainable phenomenon of financing the deficit. The wave of new America habits loving consumers sadly for me appear no where on any economic pundit studies! They abuse Americanism every day in Middle East over super big cups of Starbuck coffees, hating America is fun talk living the style is the walk the talk.

The ‘mother of all exports’ and the strongest of all commodities is the ' The American way of life,' new Chinese and emerging noveux riches in sub-continent are styled in unabashed US consumerism, US is creating a huge market outside US in region of billion people who depend on US products like Starbucks for their coffee and big Mac for their lunch, sushi are out and US empire has done what no one lese has ever done, create a billion new consumers without taking their retirement responsibilities, the trade deficit is a big plus as far as new outposts keep creating new global frontiers where American way of life is the way to go, from Tianman Square to Red Fort in Delhi the 400 million plus new middle class just in these two countries is going to become the next baby boomers, no one but American exporters of services and medicines and food will benefit from this huge rise of middle classes in China, the fact is that US deficit is a small price in terms of keeping world economies to grow but the real goal that is not appreciated by any Krugman is that all these are adding to a new consumer class that underpins future US economy, a new Europe is emerging from consumerist habits of Americans from the ashes of poverty of China and India, this could not have been possible or could not have been created by any Europe, the US deficits is the most intelligent policy ever devised by any global empires, it arouse out of natural selection because freedom and hoping for better life is a way we all want to adopt.

A new ASEAN baby boom is the future I see, it is in the interest of China to finance this deficit not for Taiwan that is silly argument, theirs and the 586 billion dollars of Hong Kong reserves do not at the moment have a place that has appetite for this kind of placement and parking, the R&D of US companies and consumerism of US public decontaminates the global economic system and provide their capital an oasis of suability and a market, America in return is creating millions of new American every day who like their lifestyle and may disagree with their politics. It is all about creating markets blessed enough to pay for the future intellectual rights of US corporate, the strangle hold of the American corporate on the global markets has a premium of more than present global GDP. The few hundred billion of deficit is a small change if it is compared to collateral benefits of creating a billion new customer in emerging markets, imagine a world that is totally littered with poverty, a rich India and a rich China benefits no one lese but US, US instead of launching a Marshall plan to create consumers helps them t create prosperity by exporting industry that is inefficient within US borders but makes perfect sense for people on the lowest rung of the ladder, the two are in twined the interests are forged and this link economists like Krugman cannot see!

The free spree spending of Americas has brought the benefits of lower prices on the Mall shelves but for Chinese from 1972 few billion dollar reserves to 356 billion today and massive increase in life style was only possible if US stayed the course, it is naive to assume that Chinese or Aseans will withdraw their funds from US, the liquidity arising from such withdrawals has no place for parking, overheating is a challenge that Chinese are still facing, same with India the new reserves of 100 plus billon has created a new middle class that loves American values although US bashing may be a common slogan after a dose of lipitor, a big meal at Taco bell and double cream Mocha cold from star buck, every time the new rich middle class steps on to the new world the tills at the US corporate in US start ringing, for every cent the new generation spends their is a cent of royalty for US corporations, this non sense of unsuitability of US deficit is cry of theoretical economists.

Posted by: Iqbal Latif on September 18, 2003 01:47 AM

Now, what happens to America when it can't borrow the money??

The Chinese first of all would go bust, their entire prosperity depends on US imports, in turn they deposit their earnings in TB's to support the US consumerism, the present deficit and import – export game is not a zero sum game but a positive cycle, the US remains the growth engine of the global economy with the aim that many don’t understand that of creating new buyers by exporting American way of life! The new riches bring new habits of films that are made in Hollywood, the need of keeping in universal contact that is fed by coalition of MFST-INTC-DELL and CSCO, the basic requirement to feel healthy and remain healthy that is fulfilled by pharmaceuticals that are predominantly American, the best cocktail for Aids is not made by Europeans or from Alzheimer’s to Parkinson to ordinary blood pressure the intellectual property rights and innovation rights are owned by US companies, the richness of the old poor nations of the east are inflicting on them US habits, life style and similar health problems and for that once new consumers with massive appetite are being added I see no threat of so called unsustainable phenomenon of financing the deficit. The wave of new America habits loving consumers sadly for me appear no where on any economic pundit studies! They abuse Americanism every day in Middle East over super big cups of Starbuck coffees, hating America is fun talk living the style is the walk the talk.

The ‘mother of all exports’ and the strongest of all commodities is the ' The American way of life,' new Chinese and emerging noveux riches in sub-continent are styled in unabashed US consumerism, US is creating a huge market outside US in region of billion people who depend on US products like Starbucks for their coffee and big Mac for their lunch, sushi are out and US empire has done what no one lese has ever done, create a billion new consumers without taking their retirement responsibilities, the trade deficit is a big plus as far as new outposts keep creating new global frontiers where American way of life is the way to go, from Tianman Square to Red Fort in Delhi the 400 million plus new middle class just in these two countries is going to become the next baby boomers, no one but American exporters of services and medicines and food will benefit from this huge rise of middle classes in China, the fact is that US deficit is a small price in terms of keeping world economies to grow but the real goal that is not appreciated by any Krugman is that all these are adding to a new consumer class that underpins future US economy, a new Europe is emerging from consumerist habits of Americans from the ashes of poverty of China and India, this could not have been possible or could not have been created by any Europe, the US deficits is the most intelligent policy ever devised by any global empires, it arouse out of natural selection because freedom and hoping for better life is a way we all want to adopt.

A new ASEAN baby boom is the future I see, it is in the interest of China to finance this deficit not for Taiwan that is silly argument, theirs and the 586 billion dollars of Hong Kong reserves do not at the moment have a place that has appetite for this kind of placement and parking, the R&D of US companies and consumerism of US public decontaminates the global economic system and provide their capital an oasis of suability and a market, America in return is creating millions of new American every day who like their lifestyle and may disagree with their politics. It is all about creating markets blessed enough to pay for the future intellectual rights of US corporate, the strangle hold of the American corporate on the global markets has a premium of more than present global GDP. The few hundred billion of deficit is a small change if it is compared to collateral benefits of creating a billion new customer in emerging markets, imagine a world that is totally littered with poverty, a rich India and a rich China benefits no one lese but US, US instead of launching a Marshall plan to create consumers helps them t create prosperity by exporting industry that is inefficient within US borders but makes perfect sense for people on the lowest rung of the ladder, the two are in twined the interests are forged and this link economists like Krugman cannot see!

The free spree spending of Americas has brought the benefits of lower prices on the Mall shelves but for Chinese from 1972 few billion dollar reserves to 356 billion today and massive increase in life style was only possible if US stayed the course, it is naive to assume that Chinese or Aseans will withdraw their funds from US, the liquidity arising from such withdrawals has no place for parking, overheating is a challenge that Chinese are still facing, same with India the new reserves of 100 plus billon has created a new middle class that loves American values although US bashing may be a common slogan after a dose of lipitor, a big meal at Taco bell and double cream Mocha cold from star buck, every time the new rich middle class steps on to the new world the tills at the US corporate in US start ringing, for every cent the new generation spends their is a cent of royalty for US corporations, this non sense of unsuitability of US deficit is cry of theoretical economists.

Posted by: Iqbal Latif on September 18, 2003 01:47 AM

Now, what happens to America when it can't borrow the money??

The Chinese first of all would go bust, their entire prosperity depends on US imports, in turn they deposit their earnings in TB's to support the US consumerism, the present deficit and import – export game is not a zero sum game but a positive cycle, the US remains the growth engine of the global economy with the aim that many don’t understand that of creating new buyers by exporting American way of life! The new riches bring new habits of films that are made in Hollywood, the need of keeping in universal contact that is fed by coalition of MFST-INTC-DELL and CSCO, the basic requirement to feel healthy and remain healthy that is fulfilled by pharmaceuticals that are predominantly American, the best cocktail for Aids is not made by Europeans or from Alzheimer’s to Parkinson to ordinary blood pressure the intellectual property rights and innovation rights are owned by US companies, the richness of the old poor nations of the east are inflicting on them US habits, life style and similar health problems and for that once new consumers with massive appetite are being added I see no threat of so called unsustainable phenomenon of financing the deficit. The wave of new America habits loving consumers sadly for me appear no where on any economic pundit studies! They abuse Americanism every day in Middle East over super big cups of Starbuck coffees, hating America is fun talk living the style is the walk the talk.

The ‘mother of all exports’ and the strongest of all commodities is the ' The American way of life,' new Chinese and emerging noveux riches in sub-continent are styled in unabashed US consumerism, US is creating a huge market outside US in region of billion people who depend on US products like Starbucks for their coffee and big Mac for their lunch, sushi are out and US empire has done what no one lese has ever done, create a billion new consumers without taking their retirement responsibilities, the trade deficit is a big plus as far as new outposts keep creating new global frontiers where American way of life is the way to go, from Tianman Square to Red Fort in Delhi the 400 million plus new middle class just in these two countries is going to become the next baby boomers, no one but American exporters of services and medicines and food will benefit from this huge rise of middle classes in China, the fact is that US deficit is a small price in terms of keeping world economies to grow but the real goal that is not appreciated by any Krugman is that all these are adding to a new consumer class that underpins future US economy, a new Europe is emerging from consumerist habits of Americans from the ashes of poverty of China and India, this could not have been possible or could not have been created by any Europe, the US deficits is the most intelligent policy ever devised by any global empires, it arouse out of natural selection because freedom and hoping for better life is a way we all want to adopt.

A new ASEAN baby boom is the future I see, it is in the interest of China to finance this deficit not for Taiwan that is silly argument, theirs and the 586 billion dollars of Hong Kong reserves do not at the moment have a place that has appetite for this kind of placement and parking, the R&D of US companies and consumerism of US public decontaminates the global economic system and provide their capital an oasis of suability and a market, America in return is creating millions of new American every day who like their lifestyle and may disagree with their politics. It is all about creating markets blessed enough to pay for the future intellectual rights of US corporate, the strangle hold of the American corporate on the global markets has a premium of more than present global GDP. The few hundred billion of deficit is a small change if it is compared to collateral benefits of creating a billion new customer in emerging markets, imagine a world that is totally littered with poverty, a rich India and a rich China benefits no one lese but US, US instead of launching a Marshall plan to create consumers helps them t create prosperity by exporting industry that is inefficient within US borders but makes perfect sense for people on the lowest rung of the ladder, the two are in twined the interests are forged and this link economists like Krugman cannot see!

The free spree spending of Americas has brought the benefits of lower prices on the Mall shelves but for Chinese from 1972 few billion dollar reserves to 356 billion today and massive increase in life style was only possible if US stayed the course, it is naive to assume that Chinese or Aseans will withdraw their funds from US, the liquidity arising from such withdrawals has no place for parking, overheating is a challenge that Chinese are still facing, same with India the new reserves of 100 plus billon has created a new middle class that loves American values although US bashing may be a common slogan after a dose of lipitor, a big meal at Taco bell and double cream Mocha cold from star buck, every time the new rich middle class steps on to the new world the tills at the US corporate in US start ringing, for every cent the new generation spends their is a cent of royalty for US corporations, this non sense of unsuitability of US deficit is cry of theoretical economists.

Posted by: Iqbal Latif on September 18, 2003 01:52 AM

Now, what happens to America when it can't borrow the money??

The Chinese first of all would go bust, their entire prosperity depends on US imports, in turn they deposit their earnings in TB's to support the US consumerism, the present deficit and import – export game is not a zero sum game but a positive cycle, the US remains the growth engine of the global economy with the aim that many don’t understand that of creating new buyers by exporting American way of life! The new riches bring new habits of films that are made in Hollywood, the need of keeping in universal contact that is fed by coalition of MFST-INTC-DELL and CSCO, the basic requirement to feel healthy and remain healthy that is fulfilled by pharmaceuticals that are predominantly American, the best cocktail for Aids is not made by Europeans or from Alzheimer’s to Parkinson to ordinary blood pressure the intellectual property rights and innovation rights are owned by US companies, the richness of the old poor nations of the east are inflicting on them US habits, life style and similar health problems and for that once new consumers with massive appetite are being added I see no threat of so called unsustainable phenomenon of financing the deficit. The wave of new America habits loving consumers sadly for me appear no where on any economic pundit studies! They abuse Americanism every day in Middle East over super big cups of Starbuck coffees, hating America is fun talk living the style is the walk the talk.

The ‘mother of all exports’ and the strongest of all commodities is the ' The American way of life,' new Chinese and emerging noveux riches in sub-continent are styled in unabashed US consumerism, US is creating a huge market outside US in region of billion people who depend on US products like Starbucks for their coffee and big Mac for their lunch, sushi are out and US empire has done what no one lese has ever done, create a billion new consumers without taking their retirement responsibilities, the trade deficit is a big plus as far as new outposts keep creating new global frontiers where American way of life is the way to go, from Tianman Square to Red Fort in Delhi the 400 million plus new middle class just in these two countries is going to become the next baby boomers, no one but American exporters of services and medicines and food will benefit from this huge rise of middle classes in China, the fact is that US deficit is a small price in terms of keeping world economies to grow but the real goal that is not appreciated by any Krugman is that all these are adding to a new consumer class that underpins future US economy, a new Europe is emerging from consumerist habits of Americans from the ashes of poverty of China and India, this could not have been possible or could not have been created by any Europe, the US deficits is the most intelligent policy ever devised by any global empires, it arouse out of natural selection because freedom and hoping for better life is a way we all want to adopt.

A new ASEAN baby boom is the future I see, it is in the interest of China to finance this deficit not for Taiwan that is silly argument, theirs and the 586 billion dollars of Hong Kong reserves do not at the moment have a place that has appetite for this kind of placement and parking, the R&D of US companies and consumerism of US public decontaminates the global economic system and provide their capital an oasis of suability and a market, America in return is creating millions of new American every day who like their lifestyle and may disagree with their politics. It is all about creating markets blessed enough to pay for the future intellectual rights of US corporate, the strangle hold of the American corporate on the global markets has a premium of more than present global GDP. The few hundred billion of deficit is a small change if it is compared to collateral benefits of creating a billion new customer in emerging markets, imagine a world that is totally littered with poverty, a rich India and a rich China benefits no one lese but US, US instead of launching a Marshall plan to create consumers helps them t create prosperity by exporting industry that is inefficient within US borders but makes perfect sense for people on the lowest rung of the ladder, the two are in twined the interests are forged and this link economists like Krugman cannot see!

The free spree spending of Americas has brought the benefits of lower prices on the Mall shelves but for Chinese from 1972 few billion dollar reserves to 356 billion today and massive increase in life style was only possible if US stayed the course, it is naive to assume that Chinese or Aseans will withdraw their funds from US, the liquidity arising from such withdrawals has no place for parking, overheating is a challenge that Chinese are still facing, same with India the new reserves of 100 plus billon has created a new middle class that loves American values although US bashing may be a common slogan after a dose of lipitor, a big meal at Taco bell and double cream Mocha cold from star buck, every time the new rich middle class steps on to the new world the tills at the US corporate in US start ringing, for every cent the new generation spends their is a cent of royalty for US corporations, this non sense of unsuitability of US deficit is cry of theoretical economists.

Posted by: Iqbal Latif on September 18, 2003 01:53 AM

Hey, does anyone have any ideas on what happens to America when it can't borrow the money??

Sorry, just funnin' ya. Those repeating comments creep up unexpectedly.

Anyway, rather than worry about NY banks going bust, I would be worried about foreign banks - depreciated dollar assets plus local currency liabilities can equal negative net worth. The collapse of the world financial and trading system would be a bad thing, and impoverish everyone. Well, I'm guessing - anti-globos may feel differently.

All of which further emphasizes that comparisons to Argentian are silly. Setting aside any sense of compassion for a moment (or as a lifestyle committment, I suppose), the world can afford to put Argentina through the wringer.

Nobody can afford a US collapse - a recession in the US means Bush loses his job; a recession in China means the current leadership, or their unhappy subjects, lose their lives.

Which is why the world's central bankers will, in "Adam Smith"'s felicitous phrase, breathe very heavily to prevent a dollar collapse. As the world's reserve currency, we illustrate the old adage that, if you owe the bank a thousand dollars, you have a problem; if you owe the bank a million dollars, they have a problem.

Posted by: Tom Maguire on September 18, 2003 08:21 AM

(Ha,ha,ha ... watch that "POST" lag-time, Iqbal.)

From "The World Out of Whack"
http://money.cnn.com/2003/09/23/markets/balance/index.htm

"Asilis believes that part of the adjustment will entail further selling in U.S. Treasury as foreign central banks curtail their buying and global investors, wary of the weakening dollar, shift assets elsewhere. Because a weakening dollar puts upward pressure on bond interest rates, it tends to discourage borrowing and spending while encouraging saving. Those higher yields will hit households that already are taking blows from a weak job market. Improved exports will need to take up the slack from softening consumer demand, if the economy is going to grow at its potential."

This kind of gobbledegook pop-speak is madness!

Take 250,000,000 Americans spending $100 a Xmas on Wal-Mart's Chinese imports.

2/3'rd's of that stays in the States as overhead and profit for a narrow few. 1/6 goes to COSCO and I-O brokers, maybe only 7%-10% of the final 1/6th is actual profit going to Iqbal Latif's "neuvo riche" Chinese elites. So $25,000,000,000 becomes $416,000,000 in-pocket net savings in China.

Now suppose those rich Chinese decide to splurge on foreign products for their own "American Dream". Out of pocket, maybe 10% discretionary spending, means $41,600,000 looking for consumer end-products that EU and JP are kicking US butt on. Phillips makes better TV's, Renault makes better auto's, Japan makes far better electronics, whatever.

US only gets a portion of global export traffic.

At best, at best, Americans could see 1/3rd of that $41,600,000 coming back. But again, 2/3'rd's of the product cost stays in China through their middleman structure, 1/6th gets eaten up by brokers, shipping and financing, so we get what? 1/3 of 1/6th, with most of that going to overhead and investor profit.

After spending $25,000,000,000 at Wal-Mart, only $2,300,000 coming back in-country for US goods.

A ROI of 1/100th of 1%.

How are "improved exports to take up the slack" gonna save the American Dream at that margin!?

All this quibbling, all this economic posturing and what-if's. Why isn't anyone doing the basic math!?

We're debt financing a disaster do-loop that will enrich those in power, pump up a few lucky brokers and banking houses, but impoverish the Average Joe.

But don't stop buying! Whoa!! Don't stop buying!!!

Posted by: Eleven Thirty on September 23, 2003 11:06 AM

(Ha,ha,ha ... watch that "POST" lag-time, Iqbal.)

From "The World Out of Whack"
http://money.cnn.com/2003/09/23/markets/balance/index.htm

"Asilis believes that part of the adjustment will entail further selling in U.S. Treasury as foreign central banks curtail their buying and global investors, wary of the weakening dollar, shift assets elsewhere. Because a weakening dollar puts upward pressure on bond interest rates, it tends to discourage borrowing and spending while encouraging saving. Those higher yields will hit households that already are taking blows from a weak job market. Improved exports will need to take up the slack from softening consumer demand, if the economy is going to grow at its potential."

This kind of gobbledegook pop-speak is madness!

Take 250,000,000 Americans spending $100 a Xmas on Wal-Mart's Chinese imports.

2/3'rd's of that stays in the States as overhead and profit for a narrow few. 1/6 goes to COSCO and I-O brokers, maybe only 7%-10% of the final 1/6th is actual profit going to Iqbal Latif's "neuvo riche" Chinese elites. So $25,000,000,000 becomes $416,000,000 in-pocket net savings in China.

Now suppose those rich Chinese decide to splurge on foreign products for their own "American Dream". Out of pocket, maybe 10% discretionary spending, means $41,600,000 looking for consumer end-products that EU and JP are kicking US butt on. Phillips makes better TV's, Renault makes better auto's, Japan makes far better electronics, whatever.

US only gets a portion of global export traffic.

At best, at best, Americans could see 1/3rd of that $41,600,000 coming back. But again, 2/3'rd's of the product cost stays in China through their middleman structure, 1/6th gets eaten up by brokers, shipping and financing, so we get what? 1/3 of 1/6th, with most of that going to overhead and investor profit.

After spending $25,000,000,000 at Wal-Mart, only $2,300,000 coming back in-country for US goods.

A ROI of 1/100th of 1%.

How are "improved exports to take up the slack" gonna save the American Dream at that margin!?

All this quibbling, all this economic posturing and what-if's. Why isn't anyone doing the basic math!?

We're debt financing a disaster do-loop that will enrich those in power, pump up a few lucky brokers and banking houses, but impoverish the Average Joe.

But don't stop buying! Whoa!! Don't stop buying!!!

Posted by: Eleven Thirty on September 23, 2003 11:11 AM

China, Japan, et.al. aren't buying treasuries because they like the returns. They are pricing their own currencies for competitiveness in the U.S. (and world economy).

Save for a small handful of countries who are in no way capable of importing all of the world's exports, everybody else is basically running a merchantilistic economy these days. If somebody is intent on running a current account surplus...

The U.S.'s major export markets in Japan, Germany, and France are all caught in the throes of structurally and demographically induced economic malaise.

U.S. exports to the rest of the world compete with those of our major trading partners in the E.U. and Japan. Due to this, cheaper U.S. exports would probably have negative impacts on growth rates in these major trading partners. The impact would be most negative in Japan.

A large decline in the Dollar would result in inflation in tradeable goods. Combined with a spike in long-term interest rates and likely only a small lagged net increase in U.S. exports, it would probably have a significant contractionary impact on the U.S. economy. Hedge funds and banks might not fare very well either. Contagion could be a large problem.

Admittedly, I'm not brightest bulb in the pack, but I'm pretty sure we would see deflation if the Dollar moves down too fast in our current world economy.

Posted by: Stan on September 24, 2003 08:40 AM

Eleven Thirty:

"Phillips makes better TV's, Renault makes better auto's, Japan makes far better electronics, whatever.

US only gets a portion of global export traffic."

So what do the people in the E.U. and Japan do with the Dollars the Chinese give them for their TVs, Autos, and electronics? I guess you got bored?

Posted by: Stan on September 24, 2003 08:44 AM

Bottom line -- no one-day crash really possible in USD (more than 20%). Prolly no one-week devaluation (to Euro/Yen/ Yuan?) of more than 30%, though this is a higher risk. Prolly no one-month devaluation of more than 40%. Almost certainly not within the next year.

PK is letting his Bush Hatred blind himself to the lack of alternative investments; the demographics of Euro mean no big growth in W. Europe (much more in CEE, much lower base).

Posted by: Tom Grey on September 25, 2003 02:50 AM

Whatever it is, it will probably come from out of left field. The imbalances will continue to grow, the pressure will continue to build, and then a [major earthquake/volcanic eruption, expensive war, climate change induced food crisis, epidemic of an emerging pathogen, et. al.] will trigger the break. Situations like this eat away at our ability to cope with unexpected setbacks. Expect the unexpected!

Posted by: Johan Doesky on October 1, 2003 08:17 PM
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