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To: GraceZ who wrote (223019)	2/21/2003 10:04:10 AM
From: yard_man	Read Replies (1) \| Respond to of 436258

>>Trade deficits always have offsetting foreign investment flows, they can't exist without them<< yes, but your analysis projects status quo and thinks such a situation is stable. It isn't. I did not mean to be condescending in anything I wrote -- pt was this -- if USD is "the reserve" currency of the world and it has fallen such a large amount with respect to your "majors" -- it's not like one of those other major currencies falling -- It has implications for perceived "credit quality" across the board --it's not that we woke up one day and all these commitments were any less sound (as they were terribly unsound for years), but that markets are beginning an adjustment process which will reprice a lot of it. Your analysis and common wisdom errs in assuming that consumption will continue at the current pace and provide stable investment flows from abroad -- consumers retrenching == decreased investment flows. And a circle starts wherein assets prices drop and fuel further retrenchment -- a circle which reveals misallocation of productive resources -- it's a misallocation -- because it was based on an ever-increasing growth in debt to fuel consumption -- an unstable situation.