|| -----Original Message-----
|| From: Doug Henwood
||
|| Alan Greenspan, in a speech delivered today
|| <http://www.federalreserve.gov/boarddocs/speeches/2002/20020313/>:
||
|| >During the past six years, about 40 percent of the total increase in
|| >our capital stock in effect has been financed, on net, by saving
|| >from abroad. This situation is reflected in our ongoing current
|| >account deficit, which, by definition, is a measure of our net
|| >investment in domestic plant and equipment financed with foreign
|| >funds, both debt and equity. But this deficit is also a measure of
|| >the increase in the level of net claims, primarily debt claims, that
|| >foreigners have on our assets. As the stock of such claims grows, an
|| >ever-larger flow of interest payments must be provided to the
|| >foreign suppliers of this capital. Countries that have gone down
|| >this path invariably have run into trouble, and so would we.
|| >Eventually, the current account deficit will have to be restrained.
|| >The nation's economic potential will be brighter if that comes about
|| >through an increase in domestic saving rather than a reduction in
|| >domestic investment.
||
|| This is one of those rare instances where somebody important worries
|| about this in public. The orthodox thing for AG to do would be to
|| tighten policy and restrain U.S. growth rates to reduce imports.
|| Clearly he's not eager to do this. So how will this be resolved? With
|| a dollar crisis and capital flight, leading to an externally imposed
|| austerity regime? A big question as the U.S. economy recovers...
||
|| Doug
Sort of what I was thinking when I posted this on March 2:
http://makeashorterlink.com/?V2B741B7 COMMENT & ANALYSIS: An unsustainable black hole: The US current account deficit cannot grow indefinitely without undermining the dollar's astonishing strength Financial Times; Feb 27, 2002 By MARTIN WOLF
Alan Greenspan's Federal Reserve has done a good job of rescuing the US economy from recession. Yet there remains a worry. By its monetary easing, the Federal Reserve has followed the core principle of Keynesian policymaking: look after the short run and the long run will look after itself. But the long run can bite back. (...) ---------------------------------------------------
So I'm asking again: Won't talking about the black hole cause a run on the bank and collapse the US Ponzi scheme? If the dollar bubble is about to pop, won't the Euro start to look more attractive? Is an interest rate war going to erupt between the US & EU on top of the free trade war and the war war?
Hakki