Berkeley Sentence of the Day

Memo to Self: Krugman Calculations

Paul Krugman writing in Economic Policy estimates that at a real dollar depreciation rate of 2% per year the US is headed for a steady-state capital-account position of -15 months' GDP, and that at a rate of 4% per year is headed for -7 months' GDP. Yet foreigners--both private and central bank--are not demanding any yield premium on US assets.

This worries him, very much: situations in which large numbers of speculators, investors, and financiers hold irrational expectations are situations that could rapidly move southward overnight should reality intrude into the mind of the capital market.