and his mellifluously titled blog interfluidity are often very interesting. He doestn’t post all that often, but that’s what Google Reader is for – you don’t have to visit his site to know if he’s got any new offerings. Steve is interested in the financial markets and in particular in the way in which markets are parcelling up what looks like manageable, relatively predictable risk but possibly increasing the damage that might be done if any really big and unpredicatble things happen.
Steve works this theme in lots of different ways and recently argued that by selling its debt to the rest of the world the US was getting itself Dutch disease (an overvalued exchange rate hampering other industries in the traded sector) – just as the Dutch did when they exported lots of North Sea Oil.
All in all, I think it is accurate to claim right now that the United States is suffering from “Dutch Disease”, with a little twist. America’s “resource curse” doesn’t come from some newfound ocean of oil. (Thank goodness for that.) Our curse is that our paper is suddenly unusually valuable, and that we are skewing our economy towards mining, packaging, and exporting ever more of the stuff. Unlike oil, our capacity to produce paper will never be exhausted. But the strange circumstance whereby American IOUs command a high price in real goods from abroad may end as suddenly as it began. Or it may continue for a long time. A repricing of US paper is an event far less predictable than the exhaustion of an oilfield. Unfortunately, our capital markets don’t seem to know how to price or hedge that kind of risk.
It is nice, in the moment, to be overpaid for something. But I hope we are not overpaid for too long. A resource curse is still a curse.