As your chart shows, the dollar goes steadily up from 1997 until 2002. If your correlation was there, the deficit would have been steadily decreasing. In tandem.
In tandem. The last 4 years. Totally debunking you and all your fellows you just pinged, as you flared your distress signal...hahahahahahaha!!!!!
What's the saying? Correlation is not causation. How about lack of correlation is really not causation?
As the author of the article stated "The larger lesson is that the dollar has no obvious relationship with the trade deficit. The exchange rate rose and fell from 1990 to 2005 on a trade-weighted basis, while the trade balance simply fell and fell further."
More from the article:
There is no doomsday today. None of the suggested links between the federal budget, trade deficit, and dollar exchange rate withstand scrutiny. The basic measures of economic vitality are GDP growth and employment, and Americas continuing strength, according to these measures, is due largely to its superior institutions and freer markets.
More:Alan Greenspan famously quipped, There may be more forecasting of exchange rates, with less success, than almost any other economic variable.[5] Indeed, economists agree that no variable has proven effective at predicting exchange rates in the real world, despite what various theories suggest. As Federal Reserve economist Greg Hopper wrote in 1997, What is not so well known outside academia is that exchange rates dont seem to be affected by economic fundamentals in the short run.[6]
More:Turning back to Americas trade figures, the real problem is that there is no real problem. The American current account deficit looks like a canyon as it surpasses 6 percent of GDP only until placed in the context of total exports and total imports. (See Chart 2) The real lesson of Chart 2 is that America is going global, not that it is sinking into debt. The trade deficit will likely persist as long as the U.S. technology-driven growth surge outpaces that of other advanced nations.
More:In sum, the public bias against imports is wrongheaded. Trade is the foundation of economics, and an excess of imports from Tokyo to a small American town is not fundamentally different from an excess of imports from Detroit. Free people engage in mutually beneficial trade, and it is wrong to fix that freedom.
Finally:As for the third link, the notion that the exchange value of the dollar is related to the current account does not seem to exist in empirical data. The logical breakdown between deficits and dollar prices is that trade alone does not drive the global flow of monies. Investment is the other half of the equation, and one should think of it as the dominant half. In a recent speech, Federal Reserve Governor Ben Bernanke made this same case, characterizing the U.S. trade balance as the tail of the dog.[9
But that was not my point. I don't have to make it. All economics theory concur in the fundamentals. A nation which imports more goods and services than it exports will have balance of trade pressures against its currency value. Other things, countervailing policies of the exporting countries (such as securities purchases in the impacted currency by those who export to the U.S.) may hold that value up for a time. See below, in the body of the article about Alan Greenspan's concerns. But that exporter behavior is not economically required conduct. Nor is it necessarily able to stay ahead of the drag on the negatively impacted currency.
So I ask you again, could we have hit a tipping point? Just look at the history. The history was shown fairly clearly there...the decline starts out at the end of 2001 and keeps going. Alan Greenspan's comments from February were hopeful. I recommend them. You might find them interesting. At least you will benefit educationally from reading him, as you are so bereft of knowledge and understanding in these issues. I will warn you in adavnce, that recently, however, Mr. Greenspan has struck a markedly less optimistic note...which I will save for your edification at a later time if you are foolish enough to assume this is his and "the" last word on the subject.
Greenspan: Trade Deficit 'Poised to Stabilize'
By Paul Blustein
Washington Post Staff Writer
Friday, February 4, 2005; 4:58 PM
Federal Reserve Board Chairman Alan Greenspan predicted today that the U.S. trade deficit will level off and possibly shrink in months and years to come, in a speech that took a less alarmist view of the trade gap than the Fed chief has offered in the past.
Greenspan cited the decline in the U.S. dollar as the main factor that is "poised to stabilize and over the longer run possibly to decrease" the trade deficit. A cheaper dollar makes U.S. products more competitive against goods produced abroad.
Up to now, trade figures have defied expectations that a weakening dollar would cause the gap to narrow. Even though the greenback has fallen steadily against most major currencies since early 2002, U.S. imports have continued to surge, and exports have failed to keep pace. The result is a trade gap that was running at an annual rate of more than $600 billion in the first 11 months of 2004, far above the previous year's record of $497 billion.
That trend should change, Greenspan contended in a speech delivered at a conference in London, a text of which was published on the Fed's Web site. Foreign firms, which have been restraining their prices in the U.S. market to stay competitive, will soon be forced to raise the prices of the goods they ship to the United States, the Fed chief said.
"We may be approaching a point, if we are not already there, at which exporters to the United States, should the dollar decline further, would no longer choose to absorb a further reduction in profit margins," Greenspan said.
As for American firms, he added, "U.S. exporters' profit margins appear to be increasing, which bodes well for future U.S. exports."
Greenspan's forecast of a declining trade gap contrasts with predictions by many other economists and experts. Indeed, according to widely publicized projections by Catherine L. Mann of Institute for International Economics and others, the current account deficit -- the widest measure of the trade gap -- could widen from the 2004 level of about 6 percent of gross domestic product, to 8 percent of GDP by 2008 and even higher levels by 2010, unless current policies and other factors change.
In an apparent reference to such forecasts, former treasury secretary Robert E. Rubin, appearing at the same conference as Greenspan, said that the U.S. budget and current account deficits "may have a tendency to get worse rather than better."
But Greenspan, more than any other figure, commands the attention of financial markets, and his comments helped buoy the dollar, which was trading late today at $1.2877 per euro, the highest exchange rate in three months against the common European currency.
Greenspan himself has previously issued much gloomier pronouncements on the trade deficit, focusing on the growing dependency of the United States on inflows of foreign capital. The trade gap essentially requires the United States to borrow hundreds of billions of dollars annually from abroad, because foreigners take the dollars that Americans pay for imported goods and invest them in U.S. securities such as Treasury bonds.
In late November, Greenspan sent stock prices and the dollar reeling when he suggested that the trade deficit, and the attendant accumulation of U.S. securities by foreigners, would almost certainly cause a further decline of the greenback. "Given the size of the U.S. current account deficit, a diminished appetite for adding to dollar balances must occur at some point," he said in that speech.
The Fed chief did not repeat that admonition Friday, although he did not repudiate it either, acknowledging that the immense amount of money and goods traversing national borders makes forecasting difficult.
"I have argued elsewhere that the U.S. current account deficit cannot widen forever but that, fortunately, the increased flexibility of the American economy will likely facilitate any adjustment without significant consequences to aggregate economic activity," he said, in a passage that footnoted the November speech. "That argument will be tested, I suspect, by possibly new twists and turns that will emerge in a seemingly ever-more complex international economic and financial structure."
Greenspan was speaking in advance of a meeting among finance ministers and central bank governors of the Group of Seven major industrial countries, for whom the U.S. trade deficit has been a major source of concern.
Reflecting those worries, Mervyn King, governor of the Bank of England, told the conference: "There is likely to be a limit to the amount of debt that one country can issue as a result of persistent deficits before investors start to worry about its ability or willingness to repay." King's comments were posted on the Bank of England's Web site.
But Greenspan said that in addition to the dollar's fall, other factors should cause the trade deficit to narrow, including a reduction in the U.S. budget deficit, which would cause demand for imports to decline.
Apparently referring to President Bush's promise to shrink the budget gap in half by 2009, Greenspan said, "The voice of fiscal restraint, barely audible a year ago, has at least partially regained volume."