options thread

Rakesh Bhandari bhandari at phoenix.Princeton.EDU
Wed Apr 5 14:58:43 PDT 2000

> Sure it can, but not forever. Trees don't grow to the sky. Etc.

Doug, is it your expert opinion that the US (Uncle Sam is not Charles Ponzi) won't be able to write off much of its debt, safely denominated in its own currency, by simply organizing or forcing onto the world the depreciation of the dollar...without jeopardizing future capital inflow? For twenty years, capital inflows into the US have bore almost no relation to exchange value of dollar.

It's almost as if US companies can maintain their own stock value by using profits for buybacks while taking on debt from the world's savers to pursue several technological fronts at once (in innovative tech competition, it's the absolute level of your R&D that matters, and the US has a good lead here).

Of course American companies will of course not turn out to be profitable as needed to honor debt and meet expectations. So much of the debt will simply be written off. Do you agree that's at least what they are going have to try to do? And what reactions will this engender if the dollar is again forced down in a redux of the sabotage of the Bretton Woods?

I know I have asked these questions before, and I would like to be talked down from such an emphasis on the global political realm. Does dollar devaluation this time simply destroy the global trading system instead of only destabilize it which has lead post Bretton Woods to the well known currency fluctuations that have encouraged regionalism/protectionism and hot money movements that are hedging against uncertainty and volatality in ever more complex and fragile ways?

It seems to me that everyone recognizes this global implosion, following destruction of dollar as international currency, is inevitable but realizes that an immediate slow down in the American machine would bring about the destruction of the global politial economy even sooner.

The crisis of US capital can only mean an aggravation of the crisis in international money.

It just seems to me that at this point the game is going to have to be played over and above the simple economy at the level of geopolitics. It's true that the American "geezers" may not get what they want, but they sure as hell are going to try--at the end of Mad Money, Susan Strange talks a bit about this. And what this will mean for the world economy seems to be an important question.

Yours, Rakesh

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