>
> First, when the "cutoff" occurs the dollar falls by some large share
> of its value as demand for dollar-denominated assets tanks, we get to
> see exactly how good our central bank is at guiding expenditure
> shifting, but when the dust clears we find that (a) foreign portfolio
> investors in the U.S. have lost perhaps 1/3 of the real value of
> investments, (b) U.S. consumption has shrunk some (but U.S. savings
> has increased), (c) U.S. investment is down some, and (d) U.S.
> exports are up a lot.
As for this 'a lot' in (d), how much will a dollar devaluation really help US exporters in lieu of a pickup in real investment activity abroad? The cutoff will be quite a bit more damaging if you are wrong about the 'a lot', correct?
Another question:
If one assumes that there have been few derivatives created to insure foreign holders of US debt against dollar decline, can't the US then actually engineer a devaluation in order to stick it to foreign holders of that debt (sort of Nixon redux)? I mean, where are they going to go anyway? They'll just have to stick that money right back into US securities, no? That's the paradox, right? As the average rate of profit falls globally or, to put it another way, difficulties arise in the profitable capitalisation of surplus value, those equities that are still paying out the old 'dividends' (whether realized directly or in capital gains for tax purposes) become even more valuable even if they are paying out in devalued greenbacks.
The more the stagnation elsewhere persists relative to the US (and there is no greater proof of Japan and Germany's hopeless stagnation than the weakness of their present cyclical upturns), the greater the possibility for Summers&co. to unilaterally restructure the American debt on its own terms via a dollar devaluation (which has the added adantage of stimulating exports). But this is putting a lot of pressure on Japan the collapse of which, suffice to say, would shake the entire global economy.
It seems that the US saves itself from default only by keeping Japan on its back. There may be some respite here for the US Empire but only at the risk of ever greater turbulence in the global economy in the not so long run.
Yours, Rakesh