Posted on 11/02/2007 5:23:12 AM PDT by Thorin
The euro, worth 83 cents in the early George W. Bush years, is at $1.45.
The British pound is back up over $2, the highest level since the Carter era. The Canadian dollar, which used to be worth 65 cents, is worth more than the U.S. dollar for the first time in half a century.
Oil is over $90 a barrel. Gold, down to $260 an ounce not so long ago, has hit $800.
Have gold, silver, oil, the euro, the pound and the Canadian dollar all suddenly soared in value in just a few years?
Nope. The dollar has plummeted in value, more so in Bush's term than during any comparable period of U.S. history. Indeed, Bush is presiding over a worldwide abandonment of the American dollar.
Is it all Bush's fault? Nope.
The dollar is plunging because America has been living beyond her means, borrowing $2 billion a day from foreign nations to maintain her standard of living and to sustain the American Imperium.
(Excerpt) Read more at worldnetdaily.com ...
I think Europe for the most part has “Great Depression” numbers in the area of unemployment.
Hard to believe their currency and that of Canada deserves to rise.
Guess part of that is in not having a military budget.
Since you see some distinction you want to make, just make it. The 20 questions game you like to play gets old.
There's not a distinction between budget (public) debt and private debt? Just trying to figure how US debt somehow "balances" the equation.
There’s a baby step for you. You almost said what you think without the coy act.
Do you think we need to borrow to "finance" the trade deficit?
Only to the degree that US debt is balancing the equation.
What do you mean? How does US debt balance the trade deficit equation?
Is that better? Can you answer those questions?
See post 442.
In the second quarter of 2004, the United States posted a current account deficit of $665 billion, or 5.7% of its total GDP, the largest in its history. The current account is the broadest measure of a nation’s balanceof income payments with the rest of the world, and it is the difference between a nation’s receipts (exports and returns on domestic holdings of foreign investment) and its payments (imports and returns on foreign holdings of domestic investment). Just like a household that spends more than it earns, a nation must finance its current account deficit through borrowing.
This borrowing on the part of the United States has, predictably, led to an enormous foreign debt, or, more specifically, to a deterioration of the U.S. net international investment position (NIIP). This position has now reached -24% of the entire U.S. gross domestic product, a deterioration of 14% of GDP since 1997. Financing these obligations has been relatively painless for the past couple of years due to historically low interest rates. But economic policy makers cannot bank on these low rates forever, and within the next decade the economic consequences of rising U.S. external debt obligations will constitute a massive loss by American households of claims to future income generated by the capital stock of the United States. In a nutshell, although the U.S. economy may not be eating its seed-corn, it is financing current consumption by selling away today the claim to income generated by tomorrow’s harvests.
"A shift in net imports of 5 or 6 percent of GDP implies a massive change in the relative price of non-traded versus traded goods, with non-traded goods becoming relatively cheaper in the United States and more expensive abroad."
Should policymakers be worried that the U.S. current account deficit is on track to set an all-time record in 2004, reaching a level near 6 percent of GDP? Though some believe that the issue is a relatively minor one, NBER Research Associates Maurice Obstfeld and Kenneth Rogoff argue that the risks may be even more serious today than they were a few years ago. With the United States today absorbing roughly 70 percent of the current account surpluses of China, Japan, Germany, and of all the world's other surplus countries, the increasingly popular view that the current situation is sustainable seems unlikely. This is all the more true when one considers that government deficits rather than high investment now account for the lion's share of the U.S. current account deficit.
In The Unsustainable U.S. Current Account Position Revisited (NBER Working Paper No. 10869), Obstfeld and Rogoff update their earlier work and extend it in a number of dimensions, including allowing for global transmission effects. These refinements, together with today's higher deficit (5.5 percent in 2004 versus 4.4 percent in 2000) lead them to conclude that a very gradual re-equilibration of global current account imbalances would imply a depreciation of 15-20 percent in the real trade-weighted dollar. A sudden rebalancing would involve overshooting, with a doubling or more of the dollar's long-term movement. The fact that dollar depreciation tends to favor the U.S. net asset position - because the bulk of U.S. liabilities are effectively indexed to the dollar whereas only roughly half of assets are -- turns out to be relatively unimportant to this calibration.
Taking into account the fact that equilibration of the U.S. current account will affect global demand everywhere -- not just in the United States --- does, however, make a big difference. Just as the United States must absorb considerably more non-traded goods and services relative to traded goods (these include both goods where the United States is a net exporter and goods where it is a net importer) when its current account deficit closes up, foreigners consumers must be induced to start consuming more of the global supply of tradable goods now that U.S. demand is shrinking.
Thus, the bulk of the short-run pressure for dollar depreciation is driven by the need to get U.S. residents to consume fewer tradable goods of all types and for foreigners to consumer more of them, with the opposite true for production. With traded goods comprising only 25 percent of GDP in most OECD countries, a shift in net imports of 5 or 6 percent of GDP (that is, a closing of the U.S. current account deficit by that amount) implies a massive change in the relative price of non-traded versus traded goods, with non-traded goods becoming relatively cheaper in the United States and more expensive abroad. It is true that the price of the goods the United States exports must also decline, and that U.S. import prices must rise. However, contrary to much analysis in the press, this effect is quantitatively much less important, and plays only a secondary role.
The requisite depreciation, of course, depends on the empirical parameters of the economy as well as on the nature of the shock leading to equilibration (a rise in productivity in the foreign non-traded goods sector will reduce global imbalances with somewhat smaller exchange rate effects than would be caused by a rise in U.S. savings). Obstfeld and Rogoff show that an exchange rate change alone (say, caused by appreciation of the Asian currencies) will have only a relatively limited impact on the current account, absent shifts in underlying savings behavior and productivity.
While the analysis does not give a definite timetable, it does point out a number of factors that suggest rebalancing will happen within the next few years. These include the open-ended security costs of the United States, high energy prices, the still expansionary stance of monetary and fiscal policy, and rising old-age pension costs. The authors note that global rebalancing could turn out to be relatively benign, as it was in the late 1980s. Then, despite a 40 percent drop in the trade-weighted dollar, the global economy was able to absorb the shock reasonably well. But post-9/11, the Iraq war, and a succession of tax cuts, the situation appears more nearly parallel to the early 1970s, when the results were far less satisfactory.
Obstfeld and Rogoff consider a number of possible economic developments that might lead to rebalancing, including changes in savings and productivity. Higher foreign productivity helps in the short run if it is focused in the non-traded sector of the economy (where the bulk of output lies). But if foreign productivity increases are disproportionately concentrated in the traded goods sector, the imbalances will get worse before they get better.
The overall conclusion here is that the global economy is more vulnerable today than it seemed four years ago, when it already looked worrisome. If the current account closes up under relatively benign circumstances, then the effects may not be too traumatic, even though there will still likely be a spectacular short-run depreciation of the dollar, 20-40 percent on a trade-weighted basis. But if it occurs concurrently with another major shock, say to security or energy prices, or to consumer confidence, then the global output ramifications could be considerable, with interest rates rising, vulnerabilities in Europe and Asia due to appreciation of their currencies, and risks of financial crises.
We had about a $64 billion trade deficit with Mexico last year. They've got our cash. Why do we need to borrow to finance that?
Anyone care to look at what the USD did under Reagan? And as that dollar fell, what happened to our economy and stock market?
I used to think it was childish behavior, but a woman suggested to me that it signifies something else. A male personality type she encounters more often than I would.
1987 is when Baker told the Japanese we wouldn’t defend the dollar. Made for one hell of an exciting week in the market.
Taxes on foreign companies ensure that the US government receives funds without increasing the amount of tax placed on US corporations and persons.
Therefore, that ensures a lower tax rate for domestic business and keeps more money in the pockets of US consumers. (It also acts as an incentive for our consumers, who have more money to spend, to buy domestic... as the foreign goods have a higher sale price - due to the tax on foreign companies.)
Much in the same way that Florida has high fees and other taxes for the tourist industry, know full well that they will simply pass it onto the tourist. Thereby allowing Florida to be one of the few states WITHOUT a state income tax.
They get the money from the foreigners and let the residents keep theirs. Maybe we oughtta do the same?
Don't forget Big Macs.
And there is somebody in the world that can do YOUR job for less money, too.
Then you better make sure you add more value than that "other" person. Either that, or push to have the government control what I can purchase and from where.
Is that your very best?
Precisely.
No one has any guarantee of anything. So, educate yourself and be ready.
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