tag:blogger.com,1999:blog-1331441403058020963.post5552559442863435438..comments2024-03-23T14:59:06.647-04:00Comments on International Political Economy at the University of North Carolina: Fannie, Freddie, and International RelationsThomas Oatleyhttp://www.blogger.com/profile/14092437150746625670noreply@blogger.comBlogger2125tag:blogger.com,1999:blog-1331441403058020963.post-5948645836822309322008-09-08T16:38:00.000-04:002008-09-08T16:38:00.000-04:00i agree. it seems the US is banking on the fact th...i agree. it seems the US is banking on the fact that the rest of the world has two thoughts: 1. they've got to do something with the capital account surpluses, and the US remains a low-risk place to invest relative to other countries; 2. if the US tanks, then the world economy tanks, so other countries won't exacerbate any downward movement. <BR/><BR/>the rest of the world is also banking on two facts: 1. the US government will not become insolvent, and the US government will always prevent "too big to fail" corporations from failing; 2. they might as well double-down on the US, because if the US dies then they die too.<BR/><BR/>given that, i'd expect the flow of foreign credit to the US to continue at relatively low rates for awhile. there may be a massive correction somewhere down the line, but i'd actually expect shifts in the overall system to occur in fits-and-starts. as some of the semi-Core countries boost domestic consumption, they might be able to shift resources from the US to their domestic economies. but if that happens, US exports should go up, and the whole thing will stabilize at another equilibrium.<BR/><BR/>or maybe it'll all come crashing down like a deck of cards. who can say? we're starting to see some domestic stagflation, and if the FED reverses course and goes hard after inflation then the whole dynamic shifts. if i'm in the FED (and thank God i'm not) i'm praying to the heavens that the lowering of rates in the last year pays quick dividends in terms of employment so they can shift the focus to inflation. if employment gets worse... look out.<BR/><BR/>also keep in mind: other countries own a bunch of our debt. if things get really bad, we can just deflate the debt and pass the losses off to them. they don't want that to happen, so they'll accept smaller losses today so they don't face massive losses tomorrow. keep in mind that a lot of these countries, i.e. China, have major domestic political concerns as well. everyone is strongly incentivized to keep the US markets healthy.<BR/><BR/>remember all that talk of "decoupling" from a year or so ago? haha.Kindred Winecoffhttps://www.blogger.com/profile/14330671232391851377noreply@blogger.comtag:blogger.com,1999:blog-1331441403058020963.post-79449381285482914892008-09-08T15:55:00.000-04:002008-09-08T15:55:00.000-04:00China's status as #1 foreign owner of Fannie M...China's status as #1 foreign owner of Fannie Mae and Freddie Mac securities and the fact that Americans can afford Chinese goods because countries like China take on our debt so we don't have to. NPR has a segment on this issue http://www.npr.org/templates/story/story.php?storyId=94369826&ft=1&f=1001<BR/><BR/>One of the more interesting questions to emerge (or perhaps, reinforced by) from the Fannie/Freddie Takeover is to what extent credit markets can continue to drive growth. Since developed markets basically survive on access to cheap (or relatively cheap) credit, and Fannie and Freddie's meltdown underscore how over-extended the international credit market is, the most important question becomes to what extent can fiscal and monetary policy fix the problem and to what extent will the market need to exert painful (and quite possibly extended) corrections to the world economy.<BR/><BR/>And, then - when everything settles out - how will all this change the way the international financial system operates?Anonymousnoreply@blogger.com