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Strategies & Market Trends : The Epic American Credit and Bond Bubble Laboratory
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To: Wyätt Gwyön who wrote (17808)8/19/2004 8:28:26 AM
From: russwinter  Read Replies (1) of 110194
 
Important question posed by Contrary Investor in their 8/17 issue:

We have one question for which an answer will be forthcoming in the level of forward foreign flows of capital to the US ahead. Up to this point, the foreign community (largely the Asian savings pool) has been willing to practice mercantile economics in essentially financing the sale of its imports to the US. Looking ahead, will this same foreign community now be willing to also finance higher energy costs to the US economy? An activity for which they would gain very little direct economic return except for attempting to keep the consumption driven macro US economy moving forward. And will they be willing to do this while their own cost of energy is clearly moving higher? Flipping this question on its head for a moment, what won't the foreign community be willing to "finance" when it comes to the US economy? For now these remain open questions. But it's pretty clear to us that we're moving into new territory as far as the trade deficit is concerned. No longer will Asia be called upon to finance just its exports to US markets. It must now be willing to finance nominal US inflation pressures for which it receives less than a corresponding direct rate of return. Oh, the law of diminishing economic returns per unit of global capital provided. Is this really the most important issue for global capital flows as we look ahead? If not number one on the top ten list, it isn't too far below.
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