Here’s a question that I’ve posed elsewhere, and I look forward to hearing your thoughts on it (and I especially look forward to the superior thinking of you non-military types).
My gut sense was that if foreigners got spooked about repayment of the $2.1T in Treasuries that they hold, that they would sell the Treasuries and repatriate the dollars that they received, resulting in big inflation stateside. $2.1T is a lot, when compared to the $6.8T in M2 (narrow money) outstanding as of Q2 ’06.
But, given that there’s $20.7T in credit market instruments (broad money) owed by households and non-financial businesses, the $2.1T isn’t a whole lot.
What’s the right denominator to consider when trying to anticipate the effect of a suddenly repatriated $2.1T?
I don’t believe that there’s any risk of foreigners rapatriating their money in the near future (next 5 years). The US is still the standard of stability.
However, the US is taking on a big future risk. It all depends on how China, India and the European Union manage their economies.
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