Rafe

An Economic Nightmare Before Christmas

These ideas about the coming of uppance are of course very logical. What bothers me it that it seems all this should have happened long ago. Other countries have been funding US debt for a long time. How can anyone predict when they will finally pull out when we still don't fully understand why they haven't done so before?

My take is that the US Federal Reserve has been acting as the Big Bank for the world. Foreign entities deposit (lend) money to the Big Bank, knowing they can redeem their loan (withdraw their deposit) at any time. I'm not sure people (and maybe countries) care exactly what is happening deep inside the bank, as long as its doors are still open and their money appears to be safe at or near face value.

Since there has been no viable alternative global bank available, countries and investors worldwide have been using the US for that purpose. Where, then, will they put their money if the US Big Bank goes out of business? Switzerland?

I'm not claiming this system can go on forever! Obviously it can't. But I don't think a theory that fails to explain why the world is still lending to the U.S. now, can be relied on to predict when there will be a serious (currency-destroying) run on the Big Bank.