Right, in theory. However, the tech bubble has been burst and there has been no weakening of the dollar. Other non-tech US securities are similarly flat or down. Interest rates and capital markets are all down, and have been down for some time. Trade deficits have been running high--I don't even remember the last surplus. Yet the dollar is still strong.
For Capital Account:
First response is "bubble pops" both Europeans and US holders of tech stocks lose. So doesn't affect capital account. What matters is expectations of relative gain in the future. I.e. question is , where should I put my dollar, EURO, Rupee, rial, now? Now that tech stocks are down, and staying down, some European capital and Japanese capital may return IF, things look better there. Also one needs to consider real gains, after inflation, as well as expectations of gains and existing real returns on things like government bonds and so on. Easy easy money here makes returns in Europe look better, though Japanese short turn returns are also pretty low.
One thing that slowed the exodus for a while was that moving to the Euro in Europe was inflationary. That lowered the real return. People preferred to be in dollar. As this transition finishes, and inflationary impact slows, maybe some money that was here will go back to Europe. |
