In the meantime, India s banks have enough capital to absorb losses.

As they absorb their losses on US treasury and agency securities, capital flows toward the US will diminish.

Capital buffers to absorb losses during the downturn of the cycle can be more easily built during the upswing.

He noted that sub Saharan Africa is now in a position to absorb more capital inflows to build infrastructure.

China s initial globalization dividend, accrued through low factor costs, is rapidly diminishing, and a new era characterized by reliance on the massive domestic market to absorb foreign high level factors of production, such as technology and human capital is just beginning.

Absorb

Its stock of foreign capital will increase steadily as foreign firms invest and reinvest in China.

Since the world does not export to Mars, some countries have to absorb these goods, and accept the capital inflows that finance their consumption.

Foreign central banks are suffering capital losses on their unthinking investments.

The new class that populates them does not demonize foreign capital.

They are resisting appreciation through foreign exchange intervention and capital controls.

Financial markets have also made clear that the ability of other major deficit countries, like Brazil and India, to absorb capital flows is reaching its limit.

Or perhaps the low cost of international capital will entice the US to absorb some of the world s excess savings, triggering a new period of global expansion.

Financial liberalization would attract foreign capital seeking high returns in capital scarce countries, allowing them to invest more than they saved.

All of these actions should help increase the absorptive capacity for foreign capital.

At the same time, the qualified foreign institutional investors (QFII) scheme allowed licensed foreign entities to invest in domestic capital markets.

The participation of foreign investors in these markets means that the risks of sudden reversals of foreign capital inflows is not eliminated.

Capacity to absorb an innovation

Foreign companies are pulling back capital, drying import and export financing. Trade is declining.

More importantly, the crisis highlighted the risks associated with high dependence on foreign capital.

This is what makes today s beggar thy neighbor policies so destructive though some countries will eventually have to absorb the surpluses and capital, each country is trying to avoid them.

Measured by the dollar index, therefore, capital losses on China s foreign exchange reserves are inevitable.

A country that has a balanced current account does not need any additional foreign capital.

Foreign borrowing can enable consumers and governments to live beyond their means for a while, but reliance on foreign capital is an unwise strategy.

This model presupposes that China will develop domestic capital, rather than simply relying on foreign investment.

Nonetheless, we continue to transfer capital to rich countries to pay interest on our foreign debt.

There are no restrictions on foreign exchange or capital movement, and bank secrecy is strictly enforced.

But manufacturing today is not what it used to be. It has become much more capital and skill intensive, with greatly diminished potential to absorb large amounts of labor from the countryside.

And a foreign exchange control enacted in 1993 ensures that only France benefits from this capital drain by limiting the free flow of capital to France alone.

Sagging public infrastructure and an inability to attract foreign capital have made the economic outlook even worse.

The consequences of abnormal capital flows into China are becoming increasingly apparent, particularly in foreign exchange markets.

Avoiding a massive withdrawal of foreign capital therefore implied taxing all deposits below the 100,000 ( 130,000) threshold.

The latter course risks the worst of all worlds all of the costs of capital controls and all of the domestic policy complications from volatile capital flows, but few of the potential benefits of foreign capital.

The US does not just pluck surplus foreign savings out of thin air. To attract the capital it needs, America must send dollars overseas through foreign trade.

None of this is to say that the risks of foreign capital flows have evaporated, and that emerging markets should throw open their capital accounts all at once.

And, remember, the country s operating model for centuries has been to provide a safe haven for foreign capital.

These factors considerably limit those countries' ability to attract foreign direct investment and other international private capital flows.

Not only is foreign capital conspicuously absent, but so are foreign managers, workers, intellectuals, and ideas. Universities, think tanks, and the media are for the most part insular institutions.

Since the peak annual rate of capital inflow was 803 billion (in 2006), the increased household saving has the potential to eliminate almost all of America s dependence on foreign capital.

Barclays Capital estimates that only a few globally significant foreign banks hold close to 10 of their Tier 1 capital in Greek government bonds, with the majority holding much less.

Normally, a country s current account deficit (trade deficit minus transfers from other countries) is financed with foreign private capital.

But, over the past several years, a number of sub Saharan countries have attracted unprecedented inflows of foreign capital.

The foreign partner supplied capital, technology, entrepreneurial expertise, and in many cases, products and services of world competitive quality.

The Japanese press likened liberalization to the second coming of the black ships, the defenselessness of the Japanese islands in the face of attack from huge foreign capitalist powers, and the readying of the Japanese economy for a bloodstained battle between national capital and foreign capital.

The US also intends to strengthen capital market competitiveness and ensure that it remains an attractive environment for foreign investment.