Today’s random thought:

February 15, 2009

-The transmission mechanism from the forex market to the real goods market is all messed up. When countries have faced massive capital outflows in the past, they were able to export their way out of the problem thanks in part to weaker currencies. But the countries facing massive outflows today, particularly those in Eastern Europe, carry liabilities denominated in foreign currencies (USD, Euro). To stay solvent and retire their foreign debt means that they won’t have the luxury to lower the price of their exports.

Advertisements