>U.S. military and political power puts a limit on how much we could
>be foreclosed upon, but still the country could suffer a capital
>outflow and be powerless to do anything about it except raise
>interest rates.
The US status as reserve center also puts some kind of limit. In a review of a book in defense of hard industries in the New York Times Book Review last week, James Galbraith emphasised the need for an honest study of the bases of US imperial power. It would have to be a political economic study with attention to a. strategic technological power, b. the US status as reserve center, c. the use of the threat of protectionism of the world's biggest market to win concession, d. the mercenary nature of its singularly world class military (for the Sauds, Germany, Japan).
Long ago, I responded to Seth's suggestion that China, the world's second biggest holder of dollars (?), could simply decide to dump them by noting that China would have to consider the threat of its losing its biggest market just as internal accumulation is weakening and expect that the US would apply military pressure at several points: assistance to India towards nuclear parity, support of Taiwanese independence, greater pressure on North Korea, etc. The strike on the Chinese Embassy in Serbia is a powerful reminder of this possibility. It seems to me that the US has China by the balls. The question is how wide it can open its market and how hard it can force the rationalisation of state owned enterprises.
At the same time, the US is indeed vulnerable as I think much more of the debt now held by foreigners is in short term securities. And desperate needs to recapitalize banks or pay off corporate debts in the wake of a severe dowturn in an economically important country could induce substantial repatriations of capital despite the pressure applied by the US--my point here is that we should not underestimate how violent and aggressive the US response can and will be. It does seem to me however that the chain will be broken first in Japan or Germany. However, since the US is clearly relatively stronger, it has become the site of so much speculative excess (and thus racked up unbeliveable foreign debt) that the most violent corrections may come first on Wall Street (raising the question of whether the wealth effect will be stronger this time than in 1986); or perhaps the dollar will resume again an upward march after the pseudo recovery in Japan dissipates and US exporters will be killed off (so Greenspan, Microsoft Pres whatever is name is trying to cool the assets market off).
There are so many breaking points presently I find it astonishing that there has not yet been catastrophe and breakdown.
Interesting study by FR Hansen Breakdown of Capitalism; our very own Jim O Connor and Paul Mattick, Sr. are treated in detail.
Yours, Rakesh