Wall Street worries that foreign investors will cool toward U.S. assets. But that may not be so bad.

CNN/Money ^ | October 1, 2003: 9:40 AM EDT | Justin Lahart

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NEW YORK (CNN/Money) - The prospect of what would happen if foreign investors cooled toward U.S. assets is giving Wall Street the cold sweats again. Perhaps it shouldn't.

The scenario goes something like this: Thanks to the United States' massive budget deficit and current account deficit (that's the gap in the United States' trade in goods and services with the rest of the world), the dollar gets significantly weaker.

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>>>>>It's also inflationary, which is bad news for Treasury debt as well.

And for people who live off the intrest from Treasuries as a form of fixed income. Anyone on a fixed income gets killed by currency devaluation. An increase in inflation hits these people just as badly as a tax hike.

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1) Budget deficits do not cause devaluation
2) trade imbalances do not cause devaluation
3) devaluation is caused because the human being, no matter how many mathematical formulas it uses, cannot determine the correct amount of dollars demanded in the marketplace.