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Non-Tech : Derivatives: Darth Vader's Revenge
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To: Henry Volquardsen who wrote (853)3/26/1999 9:42:00 AM
From: Freedom Fighter  Read Replies (1) of 2794
 
Henry,

>>The one problem with that scenario is that the trade deficit cannot exist without the
investment demand. Unless there was a net demand for investment there could have
been no financing for the trade deficit. Absent the investor demand the dollar would
have already had to fall sufficiently to attract the investors.<<

I am familiar with that view of it and agree about the way the system functions.

My problem is that it has appeared to me on occasion that central bankers filled the gap when private investment demand was absent. One could think they were acting in their investment self interests or one could think they were supporting the dollar because noone else wanted it. A coordinated stability program.

The other problem I have is that it suggests that dollar assets are in some way superior to the other alternatives. I would be willing to grant that based on your observations about the limited alternatives and their positions, but then I have this problem. Why does the U.S. consistently have higher real interest rates than many of those countries? It suggests we are paying a price to attract the capital?
If we are viewed as superior and it was investment demand driving things it should be the other way around.

This is another area where I know enough to understand the questions but not all the answers.

Wayne
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