More Money Talk

Dale Felber writes in with more warnings of the US losing liquidity.

First he quotes a new StratFor article:

“In the United States, the steady flow of Japanese
capital will dry up. Some investments will certainly
be cashed in, but, since the Japanese are unlikely to
be outright owners, this should not create any massive
dislocations while providing opportunities for
domestic investors. However, the sudden drop in
Japanese money will put a severe crimp on development
in a country that has become increasingly dependent
upon foreign capital to maintain its productivity
advances.”

Then Dale adds:

Perhaps, another trillion dollars from our economy?
Who will be left to buy our Treasury Bonds which we
need to finance the war on terrorism?

Unless people are willing to just hide a trillion in cash under the mattress, I think most of that money will come back here. Japan’s banks are on the verge of collapse, the EU is listless in a good year, and everywhere else is either too unstable or too small. (No offense to you Aussies and Kiwis. Wonderful nations, even better people — but not big league.)

A temporary crisis is certainly possible. But nothing the Fed and/or Treasury couldn’t fix by pumping out extra cash for a short while, until foreign money starts coming back into our banks.

NOTE: Must remember to ask Megan McArdle. If everyone started pulling dollars out of the US, that would hugely increase aggregate demand for greenbacks. The yen would tumble again, the euro would sink even further, and Whomever knows what would happen to the smaller currencies. Could anyone afford to keep dollars when they’re that expensive? And it would surely make imports as cheap as they’ve ever been — a nice boon to a recovering economy.