[OPE-L:5366] Re: Re: Re: Re: Re: Re: Re: the bursting bubble and the U.S. working class

From: Steve Keen (s.keen@uws.edu.au)
Date: Thu Apr 19 2001 - 16:43:51 EDT

Hi Rakesh,

Marshall is one of two very astute analysts with the fund (I believe with a 
PhD in economics, and a position which can be described as 'dialectical 
Austrian' as opposed to the market fundamentalist Austrian position 
developed by Rothbard). The other analyst, Doug Noland, is now in Australia 
doing his PhD with me (and still working for the firm and posting a weekly 
"Credit Bubble Bulletin"). He's in his mid-30s, so I'm told--though the 
name has that sound of aged wisdom to it, doesn't it?

At 06:26 AM 4/20/01 Friday, you wrote:
>what an interesting web site. Thanks much for the tip. will be perusing it 
>for some time.  Who is Marshall Auerbach?
>just noticed this guest column on the site:
>The US dollar is not as vulnerable as it may appear
>The key to understanding how this can happen is to consider how little 
>information the flow of funds accounts provides about the true ownership 
>of assets and liabilities. As far as the US external capital account is 
>concerned, hedge funds based in the Caribbean are overseas investors. The 
>activities of overseas branches of US commercial banks are also considered 
>to be foreign transactions. Also, London, and Zurich are clearing-houses 
>for all manner of nominee accounts and anonymous trusts. Around two-thirds 
>of all US bonds recorded as UK-owned belong to UK entities representing 
>non-residents. To fear that foreign investors will one day abstain from 
>fresh investment in US financial assets, leaving the current account 
>deficit uncovered and the US dollar prone, is to suppose that foreigners 
>are the sole instigators of these external financial flows in the first 
>place. It is quite likely that a substantial proportion of these external 
>flow-demands for US corporate bonds and equities are, in fact, 
>US-originated. US residents' subscriptions to leveraged hedge funds 
>reappear as foreign investment in US securities. US commercial banks' 
>overseas branches borrow in euros locally to invest the proceeds in US 
>bonds, playing the yield curve.
>Thinking in these terms, a collapse of the US dollar versus the euro 
>appears much less likely. It may still occur, but more plausibly in the 
>context of cancelled credit lines and forced asset disposals. The obvious 
>example is the slump in the US dollar against the yen in 1998 as the hedge 
>funds lost their credit lines from Japanese banks and were compelled to 
>unwind their carry trades.
>Beneath the surface, the values of the dollar, the yen and the euro have 
>been eroded simultaneously by the over-extension of credit. The latent 
>losses in the credit system, emanating from non-performing loans and 
>defaulting bonds, represent a charge against the value of the currency, as 
>surely as if the edges of the notes and coins had been trimmed away. There 
>has been a reduction in the quality of credit rather than an increase in 
>the quantity of money (net of write-offs). The search is on for a valid 
>yardstick, a measure of monetary value that has not been (and cannot be) 
>distorted by central banks' firefighting and wrecking tactics.

Dr. Steve Keen
Senior Lecturer
Economics & Finance
Campbelltown, Building 11 Room 30,
School of Economics and Finance
s.keen@uws.edu.au 61 2 4620-3016 Fax 61 2 4626-6683
Home 02 9558-8018 Mobile 0409 716 088
Home Page: http://bus.uws.edu.au/steve-keen/

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