> If that $200 billion a year of capital inflow from foreign investors
> disappeared, the consequences might well be very unpleasant.
> [text cut]
> Thus as a result the--how shall I put it?--the relative autonomy of the
> state in this area is low. My take on the subject is that Senior Treasury
> Officials do not believe that they can even think about ideas they thought
> about a decade ago because job #1 is keeping foreigners who make portfolio
> investments in the U.S. calm, happy, and tranquilized.
For sure, but still, if you really did want to start jacking up domestic savings rates without setting off a global meltdown -- say, by soaking the fat cats and taxing hell out of Wall Street -- wouldn't 1998 be one terrific year to do so? A few years from now, Japan will likely have its act together, and the EU will have a global currency in its already capacious socio-economic arsenal; those foreign investors are currently preoccupied with domestic problems (Japan) or surfing in the slipstream of the euro (the EU), but won't be for much longer. The biggest problem would probably not be capital flight by foreigners, because most of their holdings are part of long-term investment strategies, but domestic capital (e.g. the Wall Street bubblocrats) seeking to flee higher taxes by parachuting into the Bahamas and whatnot. That could get ugly real fast -- basically, it'd be a massive capital flight, a la Brazil or Russia. Appropriate company for the US these days...