There is no direct or necessary tie between a trade "deficit" and a rising or falling dollar.The value of the dollar is directly related only to the number of dollars in circulation as opposed to the market demand for dollars(for stable prices). The value of the dollar as denominated in other currencies depends on changes in that number of dollars relative to the changes in the amount of those other currencies. Buffett's bet against the dollar, if actually made for the reasons stated betrays a basic lack of understanding of economics. Or the move could have been an attempt at a self-fulfilling prophecy- a "talking down" fo the dollar, or was made on a guess that the Fed would be increasing the money supply at a faster rate and/or the euro and yen would be supplied at a decreasing rate.
None that I can see either. The idea should be that a cheap dollar makes US goods easier to sell. What really ends up happening is that a trade surplus comes with high unemployment, but spikes in the value of dollar seem to happen whenever they happen.
Exactly.
"The value of the dollar is directly related only to the number of dollars in circulation as opposed to the market demand for dollars."
And the demand for dollars is a measure of how many people want to buy as opposede to sell them. And - except for currency speculators - that relationship is directly related to our trade deficit. How else do you think people end up with dollars but instead wanting their own currency? Its by shipping us tons of goods and getting payed in dollars. No?
