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Strategies & Market Trends : The Residential Real Estate Crash Index -- Ignore unavailable to you. Want to Upgrade?

To: arun gera who wrote (241485)	3/19/2010 1:01:08 AM
From: GST	Read Replies (1) \| Respond to of 306849

<Isn't the US system designed to send dollars (the reserve currency) out to countries with favored trade status?> First things first: Thank you for a well informed reply to my post!!!!!!! I was beginning to wonder if I would ever get one :) Once upon a time the flow of funds would have been as you suggest: With an outbound flow of funds we helped other countries to finance their development during the post war period. But today it works in reverse -- instead of the US funding the development of the rest of the world, the rest of the world funds US consumption. If some of us in the US saved and some of us didn't we could finance our own economy. But since we don't save, and since we come up short on taxes versus spending, on trade and on personal consumption, we import capital to make up for the shortfall -- i.e. we import capital to sustain our consumption. This shortfall is soaring at precisely the moment when the ability and willingness of the world to fund our consumption is at issue. This is tipping point -- the point where a full blown currency crisis is at hand. Those who dwell on the Fed cannot imagine that there is something our there that is bigger -- much bigger -- than the Fed. The fed is responsible for maintaining the dollar as a form of global exchange and as a store of value for the US economy. It is to this latter goal that the Fed now finds itself with no plausible game plan. The fed can no longer forestall inflation because the Fed has no way to attract enough capital into the US to fund the current account deficit -- unless of course the Fed was to tighten in such a way as to send interest rates to the moon. If you think the US can survive with unemployment three of four times higher than it is today then I suppose this is a viable course of action. I do not see it as an option -- this is a political issue. The only other option is the one that threatens a full blown currency crisis -- print money and break the dollar -- rampant inflation.