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Originally Posted by RangerDick
Can you give some historical perspective here? Without that, this appears to me to be simply a yelling "doom and gloom" by providing figures that sound alarming but actually mean nothing, at least not to the casual reader (or do sound alarming to the casual reader based on lack of knowledge of the mutual dependancy of the dollar to foreign currency - especially with regard to those foreign countries who have purchased US debt and whose very own economies rely on the value of the dollar.)
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http://www.financialsense.com/fsu/ed...2005/0302.html
As far as I am aware, the current account deficit of the USA hasn't hit 6% of GDP ever before in history.
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Originally Posted by jorgelito
With the downward pressure on the dollar slow but steady, wouldn't that make our exports more "affordable" or attractive in overseas markets? At least countries that aren't pegged to us. So let's say the EU & Japan.
As US$ goes down, exports to EU & Japan go up?
Increasing revenue in the US, which leads to more production due to demand, which leads to more jobs, more revenue for state & feds? Generally speaking of course.
But, as US$ goes down, oil prices go up even more (because oil is sold/bought on the spot market in dollars)?
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First of all, the peg can't hold. The forces keeping it pegged are only so strong.
US dollar goes down. It now buys less -- things in the USA (from oil to fridges to cars) get more expensive.
Exports from the US increase.
So, you'd have an inflationary economy with lots of jobs and a falling standard of living. . . If everything works out sunny.
But when the US currency drops faster, US interest rates go up. People who are in debt go bankrupt (oh wait, the US congress is about to make bankruptcy from personal debt less... forgiving), and either the banks who own the debt lose money or the people who can't pay the debt end up working for nothing but debt repayments for a pretty long time.
Wars make the workers work hard, and get little benefit for it directly to themselves. A lower dollar acts like a war: less benefits, more work.
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Not so, say a number of top Federal Reserve officials. In a new analysis that turns conventional wisdom on its head, they argue that the swelling current account deficit is not the result of U.S. profligacy on the part of a tax-cutting President Bush and import-happy U.S. consumers. Rather, the gap -- which consists mainly of the trade deficit but also includes interest, dividends, and other financial payments -- stems largely from what Fed Governor Ben S. Bernanke calls a "global saving glut." The excess savings have their origins in both slow-growing industrial economies such as Japan and Germany and fast-growing emerging markets like China and India.
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When someone starts turning convention wisdom on it's head, remember the new economy and the dot-com bubble.
Sure, they could be right. Maybe China will keep buying US dollar securities until it has 10 time's it's annual GDP in US treasury bills, and the rest of the world will follow suit. Or some other means for getting rid of all that debt paper will develop.
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Originally Posted by Rodney
f the world oil trade changed to another trading currency -- the euro, for example -- the oil traders of the world would unload their stocks of dollar inflict a major hit on our currency. Interest rates would rise and we would have to "pay as we go" for everything, like most other countries, because other countries wouldn't be accumulating our money for trade among themselves.
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Russia, last I read, was talking about trading in Euros.