Wednesday, June 17, 2009

Paul Samuelson Somehow Lands in the Right Place Again and Fears for the Dollar

Samuelson writes:

Up until now, China has been willing to hold her recycled resources in the form of lowest-yield U.S. Treasury bills. That's still good news. But almost certainly it cannot and will not last.

Some day -- maybe even soon -- China will turn pessimistic on the U.S. dollar.

That means lethal troubles for the future U.S. economy.

When a disorderly run against the dollar occurs, I believe a truly global financial panic is to be feared. China, Japan and Korea now hold dollars not because they think dollars will stay safe.

Why then? They do this primarily because that is a way that can prolong their export-led growth.

I am not alone in this paranoid future balance-of-payment fear.

Samuelson reaches his correct conclusions in a very odd way. Mario Rizzo says it best:
It is possible to agree with someone’s conclusions but wonder if he has the slightest basis for them. That’s how I feel about Paul Samuelson’s latest article.
Rizzo's entire comment puts thing in perspective and is a must read. Samuelson is one of those guys who always seems to end up on the right side of things, despite himself. In his textbooks, he has always been militantly anti-gold. Yet in the 1970's, he placed his money with a Princeton-based money management firm that made a multi-million dollar fortune for him (on top of his text book income) by going long gold.

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