To all , more moseley excerpts chebucto.ns.ca
In America, what has been happening in the domestic economy is often
called a "virtuous circle". I can see why, but am dubious about the use of
such a term for something that looks more like an out of control feedback
loop that will inevitably self-destruct. Whatever it is called though, what is
certain is that it is fuelled by an inflow of foreign capital. The economy and
the financial markets have become dependent, like an addict on his fix, on
the continuation of this flow of funds. US households (believing that their
capital gains in the stock market and mutual funds are permanent) are now
spending more than they earn, thus drying up the domestic supply of
capital and producing a soaring current account deficit, predicted to exceed
$300 billion this year. Continuation of this inward flow depends on the
continued attractiveness of dollar assets to overseas investors: and for that
not only must financial asset prices continue to rise but the value of the
dollar must be seen as safe to protect the value of their holdings. Lose faith
in the strength of the dollar (especially with the huge amount of leveraged
dollar-yen and dollar-euro "carry trade" bets out there), so the argument
goes, and the direction of this capital flow will quickly reverse, triggering a
surge in inflation, and bringing down the stock and bond markets. |
