C. Rakesh,
>
>I don't know, boddhi. The extension of credit on the basis of a deposit
>base built on inflow of foreign money earned from US net imports may be
>critical source of global demand or to put the same point (i think)
>differently, without ability for the US to tolerate a run up of net
>indebtedness, global economy may founder on insufficient effective demand.
>But doesn't this deprive the underdeveloped countries of foreign capital
>that could have been used to fuel their growth?
>Yours, Rakesh
>
>
I believe I see your argument here (at least I think it's finally penetrated the gray matter).
You see the US borrowing like a drunken gambler and the third world being made to curtail its money growth at the behest of the IMF et al. That leads to the conclusion that the two are connected and they are, by monetarist ideology. The question is whether they are connected by an over-arching strategy.
I'd say this: the strategy is to have global currencies up to some minimum standard. That standard is unreachable among countries with killing debt and a large (compared to GDP) need for government redistribution of basic goods. The IMF and World Bank refuse to acknowledge that obvious fact. This exacerbates dollar hegemony which is probably good for the US borrowing position. I don't know if that's the deciding factor in the strategy, though. I think US capitalist interests benefit more from "Tiger"-style development than from dollar hegemony in the third world. I think the push to get stable currencies abroad has more to do with the globalization of manufacturing.
The pre-IMF third world regimes were probably too capricious (in foreign eyes) with their fiscal and monetary policy. Government subsidies and hyper-inflations were too common to get business done in a predictable way. I don't think anybody cared when the third world was providing mostly raw materials, but once they became manufacturers there was an inevitable increase of intercourse between the globalizer and the local economy. World commodity prices no longer stabilized the trade.
The other factor is the openness of the dollar. U.S. capitalists can't afford for people to start thinking it's okay to protect your currency through controls rather than monetarism. That would probably put us at a competitive disadvantage. I think US capitalists really get annoyed that they have to hedge in the open marketplace where everybody knows what to expect from the Fed while the yen gets moved up and down according to a more secret process - and the yen is an open currency compared to the ringgit or something.
It may be, though, that the openness of the dollar explains our increased ability to borrow better than third world dollar hegemony. Treasuries may simply be a better value than all other bonds because their price is determined in the most open and liquid marketplace. Having staked so much on that philosophy, U.S. interests are natural evangelizers for monetarism. I guess the numbers will show what is most important, but that's what we rely on smart economists for.
peace