Re: Re: Re: Re: Re: beginning of the end?

[Jim Devine <jdevine@xxxxxxxxxxxxxxx>]

Barney wrote:
> Rather than heading towards upwards or downward harmonization, perhaps we
> are in a relatively stable regime, where (non-direct) foreign investment
> transfers wealth to US asset holders, who then use that wealth to continue
> consuming imports, thus sustaining foreign output and the possibility of
> continued investment-based transfers to the U.S.  Of course, such a regime
> requires continued confidence in the U.S. as a sink for world
> savings.  Five years ago, I never would have imagined that such confidence
> could still be in effect, but apparently it is.  I now tend to think that
> a shift of investment away from the U.S. will require not only a loss of
> confidence in the U.S., but also a alternative trendy investment
> locale.  After the debacles in Russia, Mexico and Asia, I suspect that the
> financial 'community' is pretty  skittish about investment outside the G7.

It seems to me that this "relatively stable regime" has two problems: (1)
the longer it lasts, the greater consumer and corporate debt (along with US
external debt), which makes the process increasingly prone to the kinds of
"exogenous shocks" that mainstream economists talk about but are normal to
the operations of capitalism; (2) the longer it lasts, the greater the
economic consequence to the US when the bubble pops. Since the US is so
crucial to world aggregate demand, this implies greater consequences for
the rest of the world.

Jim Devine jdevine@xxxxxxx & http://bellarmine.lmu.edu/~JDevine