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I think your critique of Summers' remarks is spot on, but I always have to wonder what is the game within the game within the game that is being played out?

Countries with increasing foreign currency surpluses know quite well what their investment alternatives are, as you mention. And it has been being reported, for some time now, that they are backing away from continuing to buy Treasuries at previous levels. (Not in absolute terms, but in relative terms as a percentage of purchases, with an inceasing allocation being made to Euros.)

Summers' speech has to be interpreted in conjunction with the demands the US is making of China that they revalue their currency and in conjunction with the efforts the US is making to maintain the pricing of oil in dollars, all three of which have the same root cause: fiat currency.

The US dollar is all but worthless, and it is only by force of arms (the threat of invasion if the dollars are refused) that anyone accepts them. The US could devalue its currency to reflect its true worth. But to do so would be to lose face, as well as put itself in the poor house. Therefore, the US is resorting to back-door strategies which will have the same effect. A lower dollar will ease its debt burdens and facilitate exports. Hence, its minions, like Summers, are jaw-boning the markets as part of a multi-front strategy to salvage the US economy.

Look to the game within the game within the game that is being played out, not just to the text of a fairly stupid speech.


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