TY  - JOUR
AU  - Dooley,Michael P.
AU  - Folkerts-Landau,David
AU  - Garber,Peter M.
TI  - Will Subprime be a Twin Crisis for the United States?
JF  - National Bureau of Economic Research Working Paper Series
VL  - No. 13978
PY  - 2008
Y2  - May 2008
UR  - http://www.nber.org/papers/w13978
L1  - http://www.nber.org/papers/w13978.pdf
N1  - Author contact info:
Michael P. Dooley
Department of Economics
Engineering II
University of California, Santa Cruz
Santa Cruz, CA 95064
Tel: 831/459 3662
Fax: 831/459-5077
E-Mail: MPD@UCSC.EDU

David Folkerts-Landau
Deutsche Bank
Deutsche Bank AG London
1 Great Winchester Street
London EC2 2EQ
United Kingdom
E-Mail: david.folkerts-landau@db.com

Peter M. Garber
Deutsche Bank
60 Wall Street
New York, NY 10005
Tel: 212/250-5466
Fax: 212/250-2628
E-Mail: peter.garber@db.com
AB  - We identify incentives generated by the Bretton Woods II system that may have contributed to the sub-prime liquidity crisis now working its way through the international monetary system.  We then evaluate the persistent conjecture that the liquidity crisis is or will become a balance of payments crisis for the United States.  Given that it happens, the additional costs associated with a sudden stop of net capital flows to the United States could be quite substantial.  But we observe that emerging market governments have continued to acquire US assets even as yields have fallen, and the incentives for continuing to do so remain strong.  Moreover, the Bretton Woods II system, which has clearly been the most resilient of the forces driving current markets, continues to generate low real interest rates in industrial countries and growth in emerging markets that will help limit the damage from the liquidity crisis.
ER  -