Yes, psychology plays a huge part. But if capital is going to flee America en masse, where is it going to go that is safer?
Brian you make it sound like there is some fixed amount of capital that is needed to keep us afloat when in reality we keep falling further and further behind. It is like a pyramid where there is not any tangible product but you need to keep roping more and more friends in just to keep the churn going. Sooner or later it falls apart. Trying to minimize the problem using justification of what alternatives are there for investment is ridiculous. Money is made by moving it from place to place and constantly seeking better and more solid returns. Those will be found and just because you or I cannot identify them now doesn’t mean they don’t exist or will not exist tomorrow. Also China is working very hard to internationalize the yuan, and you know that.
It doesn’t matter where it goes. Go study the history of the reserve currency. All for the reasons for the dollar as a reserve (including giving the US the ability to penetrate foreign markets) are so far gone it is ridiculous.
The world is waking up.
Raising taxes, cutting spending (draconian or not draconian) will help a little bit but when we have to face dealing with the unfunded entitlements those measures will be nominal at best.
