U.S. foreign debt

[christian a. gregory]

> Second, when the "cutoff" occurs we suddenly discover that a lot of
> portfolio investment in the U.S. is either denominated in dollars or
> else that New York institutions have written a lot of derivatives
> insuring foreign investors against a dollar decline.
>
> In which case, all hell breaks loose...
>
>
> Brad DeLong, who is 90% on scenario 1, 10% on scenario 2...
>

Why does all hell break loose in scenario two? Because the New York
institutions have to suck up the losses promised by their derivatives? Is
there something more to it than this?

Christian