> Age differences are a sensible explanation for FDI, but not for portfolio
> investment. I guess my question is why returns on assets in the US are less
> than returns on assets abroad. Lately economists like Joseph Stiglitz and
> Dean Baker have been talking a lot about the impact of reserve-building in
> the developing world. I wonder if the ongoing need to keep building those
> reserves - mostly parked in low-yielding Treasury debt - constitutes an
> artificial subsidy to the demand for US assets and keeps US interest rates
> artificially low while acting as an impediment to the "inevitable" dollar
> outflow that everyone keeps expecting.
Consider that two of the biggest piles or $US reserves are held by Japan and China. In the case of Japan, returns, across the yield curve, in the US are higher than in Japan and have been for 10 years. In the case of China, maybe much of the dollar holdings are considered strategic, but I don't know. In addition, most international oil is still denominated dollars, forcing all oil importers to have dollar accounts.
Sure, foreign owned dollar deposits are a great boon to the US and its financial structure, and Yoshie had something to say about this a few months ago.
Chris