Posted on 11/27/2004 10:24:13 AM PST by soccer_linux_mozilla
The United States’ trade deficit is soaring and the once high-flying dollar has sunk to record lows against Europe’s common currency.
The dollar’s record low against the euro coincided with the government’s report that the United States was running a trade deficit through September at annual rate of 592 billion dollars. That compares with last year’s record 496 dollars billion. As a result, the country is having to borrow almost 600 billion dollars from overseas this year to pay for the imported cars, televisions and other items Americans are buying.
Bill, you do say it so much better than I do. Thanks
The Dollar deserves to "crash," as it has been propped up above its Market value for decades by Europe, Asia, and India.
And the higher that the Dollar is propped up, the cheaper it is for Americans to purchase foreign goods instead of American products.
In a free Market, a nation's currency will adjust based upon its foreign trade surplus or deficit. A nation that exports more than it imports will see its curency rise. Notice however, that China's currency hasn't risen.
And a nation that imports more than it exports will see its currency decline until its trade deficit declines. Notice that the U.S. trade deficit hasn't declined.
So we *aren't* in a free market because the Chinese Yuan hasn't risen and because the U.S. trade deficit hasn't declined.
That means that governments are intervening in the currency market.
China, for instance, is hoarding $500 Billion in U.S. Dollars. India has another $88 Billion. Japan has even more. Europe, more Dollars still.
By hoarding all of those Dollars, they create an artificial shortage of something that is in reality present in abundance: the Dollar.
By creating that artificial shortage, they cause demand for the Dollar to be artificially high. That artificial demand makes the Dollar worth more than what a free market would value it.
That extra value of the Dollar enables Americans to purchase more foreign goods than a free market would normally allow.
Thus, the propped up Dollar serves as a stealth subsidy for all foreign imports.
Killing that foreign subsidy will hardly be a bad thing, as you errroneously claim above.
FINALLY, someone who gets it.
Congratulations.
c#42
Let's start a discussion of instruments that can be owned to insulate one's portfolio from the coming devaluation. It's an open-ended request. I am interested in knowing which equities, mutural funds, ETFs, currency pairs and futures should be owned or shorted.
If a strong currency is so wonderful then why are the Europeons whing so loudly about their Euro?
c#42
If the dollar crashes the GOP will be blamed for run away spending, huge trade deficits and loss of high paying jobs that bought about the crash.
c#42
Look, I hate to just pound on you, but that's just ignorant.
A Dollar "crash" would eliminate our trade deficit.
Let's put your urban myth to bed:
Right now, the U.S. Dollar buys 8.28 Chinese Yuans. If the Dollar crashes, your U.S. Dollar might buy as few as 1 Chinese Yuan. That means that the Chinese flashlight that you just bought at Wal-Mart last year for $1 will suddenly cost you $8.28.
In other words, the farther that the Dollar crashes, the MORE that Chinese products will cost.
The more that Chinese products cost, the LOWER our trade deficit will go (because Americans will be buying fewer Chinese products).
So don't let me catch you claiming again that a Dollar crash would somehow do the opposite by mysteriously INCREASING our trade deficit, as that is the opposite of what would happen in reality.
You've now been educated. You now know better. If you spout such nonsense again, you'll be outed as a troll-spewing propagandist.
real estate, gold mines, metals, euros, etc. Just don't hang on to dollars.
>Darn. Does this mean more European tourist coming to our lovely shores this summer?<
Shore does. Airline flights are down $200 for the Europeans.
What is the market value of the dollar?
I think you misspoke here, you admit huge trade deficit lower the value of a currency but then you claim I am ignorate for making the exactly that claim.
Please clarifiy your position so that we may have a good debate.
Thanks. I'd like to keep that list growing, to include good choices among ETFs, funds, and currency pairs.
Another excellent bet is oil companies that have large proven reserves.
If there were no other factor, but the question of where the existing supplies of Dollars--and Dollar denominated substitutes--were being held, there would indeed be a tendency over time, for things to level out, though not without some occasional convulsions, between over valuation to undervaluation, etc.. But the killing factor, now, is the reckless spending in Washington--and the immense factor hanging over all, is the advent of the madness known as Medicare Prescription Drug Coverage, which is going to cause the deficit to soar even further, with a great increase in the supply of money and money substitutes, triggered by the practice of monetizing the deficits.
What is coming is not going to be pretty.
For a commentary on Medicare, see Medicare--Panacea or Death Potion? For the delay in the actual effects of deficit spending, hitting the prices we pay at home, see Economics and Common Sense., which discusses the inertia factor in pricing, etc. But something very ugly is coming. The ugly situation at the end of the Carter Administration was not Jimmy's doing, it was the result of what LBJ did from 1965 to 1969; and Washington, today, is making LBJ look almost Conservative.
Also US manufactoring companies that can weather the comming storm. GM, IBM, Intel, nothing like blue chips for a good nights sleep. But one has to be careful that they do not rely heavily on imported materials like steel. Much better if they are vertically integrated in the USA.
"He [Greenspan} also argues that the dollar is moving back to its long-run equilibrium position going all the way back to 1995."
Maybe things aren't so bad. http://www.lkmp.blogspot.com/
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