> Enrique, I get Gilpin's meaning to be that yes indeed to the extent those
> dollars are simply accepted and *not* cashed in, only then is the US
> defacto receiving a $265 bn dollar loan without having to pay interest per
> annum at about 5% (which I suppose is how he gets the $13 bn dollars in
> saved interest payments?)--roughly what a govt security would return? You
> use 7%; he seems to use 4.9%.
You are absolutelyly right. I misread him, and I thought he was treating the $265 as interest and was talking about $13 *trillion* loan. My apologies.
> That is, he implicitly suggests that this is not an ordinary loan at all
> due to the political power of the debtor to constrain the creditors who
> themselves are worried that the economic insolvency of the debtor would
> mean the withdrawal of global 'security' forces (or the resurgence of
> protectionism in the market upon which the creditors depend).
I completely agree with this. I think that both Japan and Euroland should at the very least try to cut off further credit to the Great Debtor. Growth strategies based on sending crap to the US in return for yet more IOUs are fundamentally wrongheaded. The ECB should have pursued a strong Euro policy from the start, with the explicit goal of turning the US balance of trade positive (get some of our money back!), replacing at least partly the dollar with the Euro as reserve currency and dampening European capital flight towards the Greenspan Bubble. Lost US demand should have been replaced with Keynesian infrastructural spending and income transfers to the periphery. Euroland has an enormous energy bill that must be paid in dollars, and Duisenberg do-nothing attitude towards the collapse of the Euro has already caused inflationary problems, particularly in the periphery.
-- Enrique Diaz-Alvarez Office # (607) 255 5034 Electrical Engineering Home # (607) 272 4808 112 Phillips Hall Fax # (607) 255 4565 Cornell University mailto:enrique at ee.cornell.edu Ithaca, NY 14853 http://peta.ee.cornell.edu/~enrique