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But what if and when confidence runs out, and $ no longer comes? Things are already getting shakier at the Uncle Sam house. The declining $ reduces the necessary $ inflows. Last month, they were only $ 48B against outflows of $ 55B. So the Uncle Sam Dr. Greenspan needs to raise interest rates to maintain some Uncle Sam attraction for the foreign $ he needs to fill the trade gap. As a quid pro quo for being reappointed by President Bush, he promised to do that only after the election. That time has now arrived, but doing so threatens to collapse the housing bubble that was built on low interest and mortgage - and re-mortgage- rates. But it is in their house values that most of Uncle Sam people have their savings if any. They and this imaginary wealth effect supported over-consumption and the nearly as high as NDP household debt. Volker's high interest rate successor at the Fed, Greenspan lowered interest rates almost to zero, which made borrowing and mortgages - that is debt - cheap and plentiful. That increased the demand for consumer goods and houses. The former are cheap from China, but the latter drives up the price and ''value'' of houses, which has encouraged upgrading to still more expensive ones, increased ''collateral," and still more borrowing, and still more consumption. So did capital flight from East Asia after its 1997 financial crisis. It fled to Uncle Sam's safe haven, both to Washington into Treasury Certificates and to New Work into Wall Street equities. At the same time, Uncle Sam benefited from the crisis by buying devalued East Asian currencies and using them to buy up East Asian real resources, and in Korea also banks, at bargain basement reduced prices. That is what generated the big bull market of rising stock prices and again apparent greater wealth, which also supported more consumption. Since then, he stock market has already crashed again.
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