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

[Peter Dorman <dormanp@xxxxxxxxxxxxx>]

Barney,

Maybe, but there can also be a generalized flight to liquidity -- but what does
that mean in today's global financial system?  I'm thinking back (OK, worst case
scenario) to the opening years of the great depression, when there was a series of
runs on national currencies.  Currencies that wealth-holders fled to were not
secure; they were the targets of subsequent runs.  Is there some way to think
about the pricking of the dollar bubble in the absence of resurgent confidence in
some other currency?

Peter

Barnet Wagman wrote:

> It seems likely that capital inflow (which exchange rates presumably reflect)
> is having an effect on U.S. aggregate demand, by jacking up stock prices and
> delivering massive capital gains to U.S. investor/consumers, as well as via
> more traditional channels.  (Although I haven't seen any numbers on this, is
> seems a safe bet that the incomes of millions of retired people now depend on
> the stock market.)
>
> 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.
>
> Barney Wagman