>Doug honestly considers the bleak possibilities:
>
> >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.
True; there aren't many other places where money managers or central bankers can park large quantities of money. But there doesn't have to be a mass dumping of U.S. assets to cause a problem - relatively modest changes at the margin could cause serious problems. Just picking a random number out of the air, say some major dollar asset holders took 10% of their existing stock of funds out of U.S. assets and put them into yen- and/or euro-denominated ones, and did the same with just 40% of their new funds. The dollar would weaken and U.S. interest rates would rise. The Fed would see this and get nervous. Other investors would see this and the process could accelerate. This is why Greenspan has been worrying publicly about why markets experience sudden shifts of perception and losses of confidence; as he admitted, on the face of it, Southeast Asia "deserved" only a modest adjustment and instead it got a major crisis. The effects on the U.S. and the rest of the world of a similar crisis affecting dollar assets would curl Telly Savalas' hair.
Doug