----- Original Message ----- From: "joanna bujes" <jbujes at covad.net>
A related question, if 80% of the world savings are being used to subsidize our deficit/spending, inflating the dollar with essentially lower the value of 80% of the world's savings. To safeguard the value of their "savings" would not other countries devalue their currencies....resulting in competitive currency devaluations? Is this not what the rembini/dollar peg is already about?
Joanna
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[All the players know that competitive devaluations via contagion will wreck the system for 20+ years, so what you've got is a game of monetary/diplomatic chicken going on]
Reserve Accumulation: Implications for Global Capital Flows and Financial Markets September/October 2004 Volume 10, Number 10 JEL classification: F32, F34
Authors: Matthew Higgins and Thomas Klitgaard
Many central banks-particularly those in Japan and the emerging Asian nations-have been building up their holdings of foreign currency assets. These holdings, known as foreign exchange reserves, may help countries stabilize their currencies, but they can also lead to investment losses for the central banks. The large share of dollar assets among reserve holdings has made foreign central banks important players in U.S. financial markets.
http://www.newyorkfed.org/research/current_issues/ci10-10.pdf