U.S. foreign debt

[Brad De Long]

> > 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

They can't. They go bankrupt. Then you--possibly--have a freezing up 
of the flow-of-funds through financial markets to finance investment. 
It's not the thing that makes Great Depressions. But it does make for 
situations like Japan today...

Brad DeLong