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

[Barnet Wagman <wagman@xxxxxxxxxxxx>]

I wonder if a flight to liquidity is still on the table.  Are
wealth holders willing to hold currency?  I tend to think not. 
What do weatlth holders consider safe instruments these days?  (If
I were a wealth holder, I'd be moving money into (internationally
diversified) govt securities but of course I'm not.)  I suspect
that U.S. stocks are seen as the safest bet, mad as we think that is.

I don't think that capital flows into the U.S. primarily reflects confidence in the value of the dollar  per se (although of course that's part of it).  Confidence in U.S. business, U.S. equity markets and the U.S. economy in general may be more important.  Of course, these factor are inextricably intertwined with exchange rates (and the expectation thereof).   But I'm not inclined to view the current situation in terms of fx.  I tend to see the strong dollar as a nice indicator of capital flows, etc.

In principle, a collapse of consumer demand (and borrowing) in the U.S. could trigger things.  But is that in the cards?  Yes, debt levels are high, but they've been high and growing for  quite a while and no one (other than a few economists) seems to know  care.

Of course (as Michael has pointed out), if|when things go, high debts levels could make things pretty nasty.  But I'm not sure that current levels of indebteness (either at the personal or national level) are unsustainable, until the international financial set find some other place to 'invest'.
 

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