Sam Gindin wrote:
The bulk of the dollar's collapse has already occured without the major speculative outflow that was expected even though its fall has been predictable for some time. Seems they will be patient a while longer and hedge their bets only via some diversification.
Diversification means less dollar buying, which means trouble for the U.S. financing its c/a deficit, no? They don't have to dump their holdings to cause a problem - just buy less at the margin.
The related question is where will they put the dollars?
This sounds like "weight of the money" arguments used to project bull markets indefinitely into the future. We heard it in the late 1980s about Japan - households and institutions had nowhere else to put their money but the stock market. We heard it again in the U.S. in the late 1990s - where else are we aging boomers going to put our money? Yet both stock markets fell apart anyway.
I really have no idea how this is going to end. But I do know there's no way the U.S. can run a c/a deficit of >5% of GDP indefinitely. Something's got to give, but who knows what or how?
Doug
