Sabri wrote:
If I were them I would buy real US assets such as land and other property with my dollars, as opposed to US debt and other financial assets, which would amount to a bloodless invasion of the US.
That's a loser, Sabri. If the U.S. economy shrinks, by definition, the values of its real assets shrink too. First and foremost, the holders of those assets (e.g. central banks) should "invade" their own countries. Their best bet is for them to invest in human capital, the environment, and infrastructure... in their own countries! That's where the highest payoff is. I know that there's an agency problem here (those central banks are not responsive to the interest of their rightful owners). Then those central banks need to be re-appropriated by the regular folks in those countries, who are supposed to be their nominal owners. And that requires those people to organize and take their public affairs in their own hands. Our obligation as economists is to defend ownership rights -- in this case, the ownership rights of these people. Their agents (governments, central bankers) should respond to them or be fired. These are the conclusions that flow naturally from basic economic theory. But you don't switch from low-return financial- to low-return real U.S. assets! Here leading social revolutions is the right financial choice. It certainly beats waiting for enlightened people in the U.S. and other rich countries (e.g. Stiglitz) to persuade their political elites that Keynes' original Bretton Woods plan was not terribly bad after all. I mean, if they reform the system, I guess that wouldn't be awful. But people are not going to sit and wait. And all this follows from economics. Some would say that the problem is that those high-return investment opportunities (education, health care, the environment, etc.) in the developing countries are not really "high-return" if you adjust for risk. But risk preferences are different for different people. Look at Oaxaca! There is a shadow discount rate implicit in the popular behavior. They have nothing to lose but their chains. Or, if you prefer, they have little to lose besides their chains. Under the Rawlsian premise that one person is *a priori* as valuable as any other, the shadow discount rates are revealed in crowd behavior -- not so much in the markets (which are weak in these social contexts) -- but in the political arena. That is the discount rate that prevails!
