COULD CAPITAL FLEE FROM THE UNITED STATES

The us. economy has long been viewed as a safe economy in which to invest. Historical examples of capital flight usually occur in less developed nations, which are more likely to follow policies that induce sudden fear among international investors. Yet lessons learned abroad can sometimes become relevant at home. Political developments in the United States have at times induced small amounts of capital flight. For example, the ‘September 22, 1995, issue of The New York Times reported that on the previous day, “House Speaker Newt Gingrich threatened to send the United States into default on its debt for the first time in the nation’s history, to force the Clinton administration to balance the budget on Republican terms” (p. AI) Even though most people believed such a default was unlikely, the effect. of the announcement was, in a small way, similar to that experienced by Mexico in 1994. The interest rate on a 30-year US. government bond rose from 6.46 percent to 6.55 percent, and the exchange rate fell from 102.7 to 99.0 yen per dollar-unusually large moves over the course of a single day. Thus, even the stable US. economy is potentially susceptible to the effects of capital flight,