Keynes nevertheless made quite a bit of money on the stock exchange did he not?
We are talking about a probabilistic approach to all these phenomena, and how they may interact at what time and in what sequence.
The IMF was strikingly explicit on Tuesday I understand, in predicting that the dollar was due for a sharp depreciation because the current-account gap is "too large".
Much may depend on whether there will be positive feedback, accelerating any downturn, or negative feedback, compensating for it.
I gather that the numerical size of the key figures is that
foreigners own about 11 % of US stock,
In 2000 foreigners bought $193 billion of US stocks.
They also bought $293 billion of non-Treasury bonds.
In 2000 foreigners held $250 billion in US currency.
From what I could see from the advice I recently received about what to do with a legacy, in the last ten years mutual funds in the UK have become extremely systematic in their approach and *non-speculative*. I am not sure if this is particularly favoured by government profits tax regulations, but it must contribute to a smoother market than otherwise. A typical portfolio is conceived as having a round 10 or 20% in various particular regions of the globe. The money is all pooled in this, and then the accounts for the different regions are managed by investment bureaucrats. If indeed much of the investment say from Europe into US stocks is of this nature, the most that such mutual funds will do is considering lowing the percentage of the overall funds, placed in the US by say 5%.
To quite an extent that perhaps will also go for more liquid investments.
Therefore it seems that people are expecting the euro to rise again, but no one is necessarily predicting it will reach parity with the dollar.
One other factor may be whether capitalist opinion in the USA itself becomes genuinely divided as to whether it is in the interests of the US economy to have a dollar as strong as it is. Much of this debate sounds illusory. The strength of the dollar in recent years was largely the result of the relative contraction of other areas of the world, not conscious policy, no?.
I cannot see what actual policy measures are potentially at the disposal of the US government to introduce a weaker dollar, if it really wants to, apart from believing that it would be helpful to try to "talk down" the dollar. No capitalist or representive really imagines that US government policy should lower interest rates to the point at which inflation rises and the currency depreciates significantly. Yes?
The only conscious policy option for lowering the value of the dollar relative to the rest of the world, which is *not* being discussed at the moment, seems to me actually some moves that demonetize the dollar as world money. If some of the present $250 billion dollars held by foreigners, were in the form of IMF units denominated in a baket of currencies, that would give relatively more purchasing power to consumers outside the US and make its exports cheaper as a result of the corresponding fall in the dollar. The euro has shown how you can technically at least create a unit of currency out of a basket of others.
As traditional US manufacturing like cars, are getting squeezed, (they now fear further redundancies if Europe introduces, as planned, liability on car manufacturers for the disposal of old cars!) the cleverest move would be to press ahead with a Marshall Aid programme to Africa and perhaps some other areas, linked to health, and to allow the US to move further ahead in accumulating capital in new scientific drug production to meet this demand.
Obviously a grand scheme to establish a genuine world money that is not the dollar, and parallel with this to promote global deficit spending by the IMF to stimulate production across the globe as a whole, is unlikely to come about in ideal form without a catastrophe.
Nevertheless I would have thought enough ideas are emerging that the dollar will not drop catastrophically, but compensatory methods of managing global capitalism more scientifically will be increasingly discussed.
Chris Burford
London