There has been a certain momentum to leaving money in $US due to history, laziness, reserve status, etc. that you don't take into account
not to mention necessity. one of the interesting comparisons i've read lately in several sources (one being, i believe, that CI article ild posted last week, and i think they've mentioned it before) is the similarity between the way manufacturers provide finance to consumers (as in cars, etc.) and the way large parts of the world, especially Asia, "finance" US purchases of their goods by parking their trade surpluses in the US. the composition has shifted from direct investment toward agencies, which is helpful in supporting our housing bubble. which is helpful in allowing consumers to "extract" equity so they can buy more consumer goods made by... our trade partners.
how this system ultimately breaks down is anybody's guess. the pollyannas point out that people were wringing their hands about the trade deficit back in the mid 1980s, so what me worry.
but we are at an unprecedented juncture here, with GDP growth, the bullish credit cycle and stock market (and all those bullish refis) behind us instead of in front of us, and here we are sitting at a 5% current account deficit and at least 3% fiscal. CI had a nice chart of the historical peaks and valleys of these "twin towers". as i recall 8% was the last peak, and we look to be on course to test 10%.
it seems we have never been so dependent on the kindness of strangers, even as we have never been so arrogant (in perception at least) in terms of our geopolitical behavior. |
