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To: Coryoth
You point to several problems for managing the US economy, but you seem to treat the possibility of all catastrophic events with equal probability. what I mean to say is, that while it's true that foreign investment in the US could stop instantly, the likelihood of that happening is actually very small for lots of reasons.

In fact, all of the catastrophic events you warn about seem to involve decisions by large groups of investors which all occur simultaneously, but there are serious limits on their behavior which you don't address.

It's rare that a large group of people, forming independent decisions, all arrive at the same conclusion on the same day. This fact imposes intrinsic limits on the behavior of the markets, so an out and out catastrophe is rare.

For those precipitous changes, there are lots of signals leading up the event, and even if the exact moment of the event can't be predicted, it's cumulative likelihood can be, but those conditions don't really exist right now.

I'm not saying that you need to only discuss wine and roses, but the fact is, that markets don't crash every day, so you don't need to treat every day as if there will be a market collapse.

19 posted on 11/24/2004 4:36:25 AM PST by tcostell
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To: tcostell
It's rare that a large group of people, forming independent decisions, all arrive at the same conclusion on the same day. This fact imposes intrinsic limits on the behavior of the markets, so an out and out catastrophe is rare.

I do agree that it will take a significant chain of events, and that disaster is actually unlikely - that doesn't mean we shouldn't at least be concerned with these issues.

As to synchronicity - it need not be a day, it can be a month, or six. And yes, the market is a mass of independent minds all moving in millions of different directions, but it does also have a herd mentality and is prone to occasional panic: Consider the collapse of the Asian tiger economies in late 1997, or the abysmal state Argentina found itself in.

Yes, the US is not Indonesia, nor Argentina, and certainly more significant factors would be required to actually get the herd to move. Once moving however, those examples show that investment can and will depart en masse in a matter of months, and currency depreciation can and will occur with dramatic speed should panic spread through the market.

As to your contention that the current state of affairs is not worthy of concern - I would point you to this speech by Alan Greenspan. He is typically cautious and measured (to be expected given how much the markets hang on his every word), but he quite clearly outlines that there is cause to be concerned with regard to the US current account deficit, and the US Dollar. I would think that if Alan Greenspan is ready to remark on cause for cautious concern, that one can reasonably say that we shouldn't dismiss the possibilities.

22 posted on 11/24/2004 5:06:24 AM PST by Coryoth
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