Rakesh Bhandari wrote: >(2) what happens if in running deficits, the US sucks up global >capital, raises interest rates, and visits catastrophe on poorer >nations? is this possible?
You're assuming that deficits drive up interest rates. There's no simple relation between deficits and interest rates. If deficits rise because of a weak economy - either passively, because of lower revenues, or actively, as a policy choice - then government credit demand could be offset by weaker private credit demand. And you're also assuming that the U.S. doesn't use the borrowed money to buy imports from poorer countries. Considering that every item of clothing I'm wearing was made in a poorer country, and that the computer I'm typing on was assembled in Mexico - not to mention what we know from the trade stats - that seems wrong. Demand from the U.S. has stimulated the economies of Latin America and East and South Asia more than any interest effect. Doug
