Re: Weak dollar - budget deficit relationship
From: Bill (xxx_at_yy.zz)
Date: 12/27/04
- Next message: Rob Duncan: "Re: Limits to longevity"
- Previous message: Peter Lawrence: "Re: Free land in the heartland"
- In reply to: Edward: "Re: Weak dollar - budget deficit relationship"
- Messages sorted by: [ date ] [ thread ]
Date: Mon, 27 Dec 2004 04:11:51 GMT
"Edward" <sorry@nospam.com> wrote in message news:cqnaec$1qa$1@gist.usc.edu...
>I had always thought that the value of the dollar was, like everything else,
> determined by the supply and demand of dollars in foreign exchange markets.
> Initially, this led me to think that the value of the dollar must be going
> down because our demand for foreign goods must be greater than foreigners
> demand for US goods. Is this trade deficit effect also possible along with
> the aforementioned budget deficit effect?
>
The trade deficit is the biggest part of it. Suppose you were a country and
you made things and your currency was the Eddie. You are in business with two
of your friends who also make things and have currencies called the Tommy and
the Billy. Over time you are getting them to send you more stuff than you are
shipping to them. You do this by paying them in Eddies. They begin to realize
they have all these Eddies around and Tommy and Billy each find the other is
less willing to accept them in trade. So the next time you try to buy
something they say it is going to cost you 5 Eddies instead of 4.
In this world, what other countries typically do with their excess dollars is
buy US govt. bonds.
Bill
- Next message: Rob Duncan: "Re: Limits to longevity"
- Previous message: Peter Lawrence: "Re: Free land in the heartland"
- In reply to: Edward: "Re: Weak dollar - budget deficit relationship"
- Messages sorted by: [ date ] [ thread ]
Relevant Pages
|
|
