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Self-reinforcing in the short run, they also generate interest and repayment obligations that are cumulative and work in the opposite direction. Eventually the growing debt service (f N) is bound to undermine the relationship on which the Imperial Circle rests and the trend of the exchange rate is going to be reversed (6) (i T + tN) > 4 St+ 1 e-* (t S + 4 T + f N)-> 4 4 e At that time, debt service and the flight of speculative capital may combine with the trade deficit to generate a...

Reagans Imperial Circle

At the time of the international debt crisis I was working with a rather crude and inarticulate model of credit expansion and credit contraction similar to a boom bust sequence in the stockmarket. I thought that 1982 was the end of a period of worldwide credit expansion and failed to anticipate the emergence of the United States as the borrower of the last resort. The large and growing U.S. budget deficit emerged as the unintended consequence of conflicting policy objectives. On the one hand,...

Reflexivity In The Currency Market

While reflexive interactions are intermittent in the stock market, they are continuous in the market for currencies. I shall try to show that freely floating exchange rates are inherently unstable moreover, the instability is cumulative so that the eventual breakdown of a freely floating exchange rate system is virtually assured. The traditional view of the currency market is that it tends toward equilibrium. An overvalued exchange rate Sncourages imports and discourages exports until...

Reflexivity In The Stock Market

In trying to develop a theory of reflexivity, I shall start with the stock market. For one thing, it is the market I am most familiar with I have been a professional investor for more than twenty-five years. For another, the stock market provides an excellent laboratory for testing theories changes are expressed in quantitative terms and the data are easily accessible. Even the participants' views are usually available in the form of brokers' reports. Most important, I have actually tested my...