I suspect that you are seeing a temporary fall in US Treasury holdings by foreign Central Banks due to the currency swaps. Several of the countries with recently weakened currencies just got US Treasuries and are using them to strengthen their currencies.

The South Korean central bank, for example, is currently strengthening the won, but it will go back to its long-term policy of weakening the won, by accumulating dollar reserves, so that they can steal more market share for Korean comapanies competing in the depressed world markets.

They want their currency to weaken, but not so quickly that it causes their own businesses to default on loans payable in dollars.

I don’t share your concern about U.S. interest rates getting too high. The latest GDP report from the BEA said that US inflation (price index for GDP) rose by 4.8% in the third quarter which means that 6 month treasuries are now earning -4% interest right now and 10 year treasuries are earning -1%. Since when are negative interest rates desirable?

Howard Richman
http://www.tradeandtaxes.blogspot.com

But you’ve had 1-3% growth in total factors productivity over the last decade due to IT spending. Manufacturing has shrunk, but most of GDP comes from IT services which are part of the reason that IT has grown. Information technology tends to be very capital lean.

I don’t think that the US has had a consumption/investment misallocation at all. The misallocation has been a wage/lending misallocation.

Twofish: One second you are coming across as the champion of working class Americans, and the next second you are bashing them for spending too much.

DJC: Speak for yourself. You are the one that justifies Paulson’s $700 billion corporate welfare program for Wall Street banks.

Because I happen to believe that in combination with higher taxes for the rich and more government spending on public goods, that the bailout will encourage saving by the lower and middle classes and increase their standard of living.

I think that bank managers should be wiped out, but if you bash banks you end up bashing depositors. So I think what the government should to is to bail out the banks but fund the bailout from the rich through higher taxes on incomes and capital gains.

The trouble with “let the banks fail” is that you are punishing the less bad banks and all of the CEO’s that have been fired get to keep their money. If you tax them, then the money ends up in the hands of middle class and poor people who can then buy flat screen plasma TV’s with them.

The problem I have with your views is that they are incoherent. I really have no idea what you are for or against, because one moment you support one thing and then next moment you support a policy that is logically inconsistent with what you supported a second ago.

It’s the sort of the thing killed McCain’s campaign.

“If the U.S. had adequate productivity it should be most competitive compared to other nations and therefore produce trade surpluses. But, instead, the U.S. produces huge, record trade deficits” — 1985-2007 cumulative deficits totaled $7.4 trillion.

I think the only path to pursue is for the US to produce higher quality & lower cost, goods & services. Somehow this playing field needs to be leveled.

It should be economically advantageous for creditor nations, and for the world economy, if creditor nations operate with trade deficits: deficits proportionate to their creditor status. I.e., the deficits should be large enough to enable the nationals of debtor nations to acquire a sufficient amount of foreign exchange to enable them to service thier international debts.

And during Greenspan’s 1% FFR, the “expansion coefficient” or money multiplier, doubled in 6 years. I.e., if the FED used the FFR as a “guide post”, it was certain to backfire.

There are 5 interest rates that the Fed can directly control in the short-run; the Discount Rate charged to bank borrowers & the Primary Credit Rate for the PDCF, ABCP, ABCP MMF, & MMIFF.

The effect of Fed operations on all other interest rates is INDIRECT, and varies WIDELY over time, and in MAGNITUDE.

DJC: The entire US Economy is in trouble due to misallocation, waste, looting, and even criminal embezzlement of capital across Wall Street. Joe6pack was deliberately lured into the ponzi mortgage bubble scam by the Wall Street banksters. Instead of investment into industrial productivity, capital was grossly misallocated into consumption with consumer spending accounting for a record 70% of GDP, but industrial production collapsing to record low 12% of GDP.

Twofish: One second you are coming across as the champion of working class Americans, and the next second you are bashing them for spending too much.

DJC: Speak for yourself. You are the one that justifies Paulson’s $700 billion corporate welfare program for Wall Street banks. AIG has vaporized $140 billion plus in taxpayer capital that could have been used to rebuild the infrastructure of the United States. Instead the US Treasury under Paulson’s orders sends multi-billion dollar checks to his business partners at Goldman Sachs to cover counterparty losses from the AIG fiasco.