I have to disagree with the proposition that the US
current account deficit might presage flight from
the greenback, capital outflows and financial collapse.
Though the scenario is plausible on the surface, it
overlooks one thing. Increasingly, the world's wealthy
count their wealth in dollars. There is ample reason for
this -- dollar-denominated financial markets are
broad, deep and fully international; dollar-based
multinationals represent the bulk of all MNC assets in
which the rich hold their wealth; most of the developing
world is starved for dollars, so extra-US dollar lending
opportunities abound; etc...
The significance of this is not simply that the demand
for dollars will remain high (indeed the fact that
the dollar is rising signifies that there is considerable
excess demand for dollars). It also means that a sizable
share of the world's wealth is held by people who
figure in dollars -- they don't care about the dollar's
value relative to the yen or euro or peso, because
they've already written off the yen and euro and
peso. This is why, despite occasional bouts of
speculation and depreciation, the world's wealthy
continue to hold dollars and the dollar share
of international lending and reserves is increasing.
Ellen Frank
[EMAIL PROTECTED] writes:
>People would have to be confident that the fall would be very gradual.
>
>Jim Devine wrote:
>
>> a weaker greenback would be a good thing, if it falls _slowly_.
>>
>
>
