Re: Weak dollar - budget deficit relationship

From: The Trucker (mikcob_at_verizon.net)
Date: 01/10/05 

Date: Mon, 10 Jan 2005 12:30:20 -0800

Edward wrote:

> 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?
>
> <quirk@syntac.net> wrote in message
> news:1104095070.441382.171450@z14g2000cwz.googlegroups.com...
>>
>> Edward wrote:
>> > Hi,
>> >
>> > I was reading an article in the WSJ (Thurs, Dec. 2) a very verbose
>> article
>> > relating to a newly politically recognized relationship between
>> budget
>> > deficits and the weak dollar.
>> >
>> > Could one of you, in more simplistic terms, please explain how the
>> two are
>> > related today?
>>
>> In principal. the Dollar is worth all the goods created by the economy
>> devided by the number of dollars in the economy.
>>
>> When the Government Spends more than it Taxes, it is putting more
>> dollars into the economy than it is taking out of it, meaning that the
>> amount of dollars in the economy goes up, wile the amount of goods
>> remains the same, this contributes to what is known as the inflationary
>> gap. However, other things also contribute to the inflationary gap,
>> lending practices of Banks, for instance, and only all these things
>> taken as a whole can determine wether the dollar will go up or down.
>>
>> However, I do not think that the Deficit is the major cause of the
>> collapsing dollar, rather it is the effect of the Euro pushing Dollars
>> out of foreign reserves, creating an over supply of dollars.
>> The dollar will be going farther down for a while yet.

The "collapsing dollar" is, in fact, the result of deficit spending.
Dollar decline in relation to real estate and other assets results
from too much spending and inadequate taxation. It is unfortunate
that we waste all those dollars on military spending just so Pinocchio
Bush can be the "commander in chief" of the world's most powerful
nation. Seems to me that we would be a lot better off spending on
infrastructure and letting the Arabs and the Jews do as they will. 

-- 
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the people themselves; and if we think them not enlightened enough
to exercise their control with a wholesome discretion, the remedy
is not to take it from them, but to inform their discretion by
education." - Thomas Jefferson.  http://GreaterVoice.org

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