[snowsislander]

You do realize that the Dollar has dropped 30% in the past 2 years, and that it continues to drop (hence, this whole thread), yes?

And you do realize that as the Dollar continues its gradual decline that our trade deficit will fall towards parity, yes?!

That raises an interesting question. I believe that the 30% is in reference to the Euro (it was at .9895 on November 27, 2002) and to the yen (which has been as cheap as 124.99 on December 5, 2002).

Yet our trade balance with each has not yet declined; in fact, we are at higher imbalances with each.

In fact, for Germany, the worst months on record (at over 4 billion dollars in the red each) are March, April, and July of 2004, and December of 2003.

For the European 15, 2004 is the first year that we have had five months where the imbalance went over $9 billion; in 2003 we had two, and 2002 also had two. There had been none prior.

For Japan, our trade imbalance has been significantly worse in 2004 than 2003 (though the last few months of 2002 were equivalent to what we are seeing in 2004.)

How far down do you think the dollar needs to go before we see some solid movement on the trade imbalance?

[I am using the New York Fed's numbers for exchange rates, and the Census Bureau's numbers for trade numbers.]

[Moonman62]

How far down do you think the dollar needs to go before we see some solid movement on the trade imbalance?

A rational person might conclude that there are other factors besides currency that affect trade balances. Of course the government loves to force square pegs into round holes (at great expense), and GWB will probably knock the dollar down until there is a loss of confidence in it, with a some sort of financial crises such as the 1987 stock market crash.

There will be a government investigation with a budget of $300 million headed by Jamie Gorelick. The whole mess will be blamed on Martha Stewart and she'll be sent back to prison. End of story.

[groanup]

" How far down do you think the dollar needs to go before we see some solid movement on the trade imbalance?"

Excellent question. Remember we are the richest nation in the world. We have most of the world's money and most of the demand for the world's goods. At some point international products are supposed to be too expensive for us to buy. So how much money do we have? Are you going to NOT buy that Japanese gizmo for Christmas because it costs 30% more this year? Hell, you didn't know how much it cost last year. You'll buy it.

[Southack]

"How far down do you think the dollar needs to go before we see some solid movement on the trade imbalance?"

Two years ago on this forum I was asked that self-same question and my response then is the same as my response now: 40%.

We've had 30% already since 2002, so 10% more Dollar devaluation against the Euro should do the trick against that competition.

Then we've got to keep dropping the Dollar until the Chinese break their Yuan-Dollar peg. After that, I'd expect the Dollar to climb back up to 40% below its 2002 peak.

Then +- 10% trading ranges for decades to come.

But that's merely my opinion. The reality is that the Dollar will continue to fall until such time as our foreign trade deficits begin downward declines quarter on quarter.

So the next 10% drop could just be a first start. It could be much more drastic if Europe and Asia choose to go to the mat on this issue.

And that would make me even happier.