Comments on: Two Views About a Possible U.S. Hard Landing: Foreign Flight versus Consumer Burnout http://www.thomaspalley.com/?p=24 Economics for Democratic and Open Societies Thu, 09 Sep 2010 20:16:41 +0000 http://wordpress.org/?v=2.6 By: Fetch Blogs » Blog Archive » Dr. Setser on Rubin and a Hard Landing http://www.thomaspalley.com/?p=24#comment-29790 Fetch Blogs » Blog Archive » Dr. Setser on Rubin and a Hard Landing Wed, 07 Feb 2007 04:13:38 +0000 http://www.thomaspalley.com/?p=24#comment-29790 [...] Dr. Brad Setser excerpts from Robert Rubin’s Wall Street Journal OpEd and adds some interesting commentary. Setser writes: Thomas Palley is right: “Foreign flight” (a shock to the United States ability to borrow savings from abroad) is very different from “Consumer burnout” (a slowdown in US demand growth). In both the foreign flight and the consumer burnout scenarios, the US economy slows and the dollar falls. But in the foreign flight scenario, as Palley notes, the fall in the dollar and rise in US (market) interest rates triggers the US slowdown, while in the consumer burnout scenario, the US slump triggers dollar weakness. Foreign flight would combine dollar weakness with higher US (market) interest rates, consumer burnout combines dollar weakness with lower interest rates. [...] [...] Dr. Brad Setser excerpts from Robert Rubin’s Wall Street Journal OpEd and adds some interesting commentary. Setser writes: Thomas Palley is right: “Foreign flight” (a shock to the United States ability to borrow savings from abroad) is very different from “Consumer burnout” (a slowdown in US demand growth). In both the foreign flight and the consumer burnout scenarios, the US economy slows and the dollar falls. But in the foreign flight scenario, as Palley notes, the fall in the dollar and rise in US (market) interest rates triggers the US slowdown, while in the consumer burnout scenario, the US slump triggers dollar weakness. Foreign flight would combine dollar weakness with higher US (market) interest rates, consumer burnout combines dollar weakness with lower interest rates. [...]

]]> By: Insurance » Dr. Setser on Rubin and a Hard Landing http://www.thomaspalley.com/?p=24#comment-29100 Insurance » Dr. Setser on Rubin and a Hard Landing Sun, 04 Feb 2007 06:02:33 +0000 http://www.thomaspalley.com/?p=24#comment-29100 [...] Dr. Brad Setser excerpts from Robert Rubin’s Wall Street Journal OpEd and adds some interesting commentary. Setser writes: Thomas Palley is right: “Foreign flight” (a shock to the United States ability to borrow savings from abroad) is very different from “Consumer burnout” (a slowdown in US demand growth). In both the foreign flight and the consumer burnout scenarios, the US economy slows and the dollar falls. But in the foreign flight scenario, as Palley notes, the fall in the dollar and rise in US (market) interest rates triggers the US slowdown, while in the consumer burnout scenario, the US slump triggers dollar weakness. Foreign flight would combine dollar weakness with higher US (market) interest rates, consumer burnout combines dollar weakness with lower interest rates. [...] [...] Dr. Brad Setser excerpts from Robert Rubin’s Wall Street Journal OpEd and adds some interesting commentary. Setser writes: Thomas Palley is right: “Foreign flight” (a shock to the United States ability to borrow savings from abroad) is very different from “Consumer burnout” (a slowdown in US demand growth). In both the foreign flight and the consumer burnout scenarios, the US economy slows and the dollar falls. But in the foreign flight scenario, as Palley notes, the fall in the dollar and rise in US (market) interest rates triggers the US slowdown, while in the consumer burnout scenario, the US slump triggers dollar weakness. Foreign flight would combine dollar weakness with higher US (market) interest rates, consumer burnout combines dollar weakness with lower interest rates. [...]

]]> By: Noryungi http://www.thomaspalley.com/?p=24#comment-48 Noryungi Fri, 25 Nov 2005 11:39:06 +0000 http://www.thomaspalley.com/?p=24#comment-48 What about a double whammy? I personally think the most likely scenario is that American consumer spending will slow. This could be due either to the end of the housing bubble or to some other factor (global rising gas prices, massive, 911-scale terrorist attacks). Because the consumer spending slows, a 'foreign flight' can then take place, as foreign investors try to pull their money out of the U.S.A. to reduce their losses. Also, an interesting factor is that a large part of the U.S. debt is held by China. I strongly suspect that, in the case of a conflict between China and Taiwan (for instance), China will use this massive debt as an economic weapon against the U.S.A., to prevent its intervention and meddling. This would be consistent with ancient chinese strategies, such as those spelled in Sun Tzu's "Art of War", that recommend undermining the strength of an enemy a long time before conflict even takes place. What about a double whammy? I personally think the most likely scenario is that American consumer spending will slow. This could be due either to the end of the housing bubble or to some other factor (global rising gas prices, massive, 911-scale terrorist attacks). Because the consumer spending slows, a ‘foreign flight’ can then take place, as foreign investors try to pull their money out of the U.S.A. to reduce their losses.

Also, an interesting factor is that a large part of the U.S. debt is held by China. I strongly suspect that, in the case of a conflict between China and Taiwan (for instance), China will use this massive debt as an economic weapon against the U.S.A., to prevent its intervention and meddling. This would be consistent with ancient chinese strategies, such as those spelled in Sun Tzu’s “Art of War”, that recommend undermining the strength of an enemy a long time before conflict even takes place.

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