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To: Oeconomicus who wrote (158004)	6/20/2003 1:04:28 PM
From: GST	Respond to of 164684

People outside the United States have no obligation to finance our $500 billion per year current account deficit on our terms. If they cannot or choose no to lend us the money then we have a very serious problem -- higher interest rates or a persistent trend towards a lower and lower dollar. A lower dollar in itself is inflationary and will also tend to push up interest rates. We have counted on the ability and willingness of foreign sources of savings to expand their lending to us indefinitely, and we have been doing this for a very long time. The extent of our borrowing serves to increase the risk rather than prove that there is little risk as you imply. When huge foreign currency losses take place -- as they have in the last six months by anyone in Europe who is holding dollars -- there is an extremely good reason for them to sell our securities, sell US dollars and keep their money at home.