Re: The U.S. Trade Deficit

On Sat, 20 Aug 2005 20:55:12 GMT, "Bill" <xxx@xxxxx> wrote:
>
>"William F Hummel" <wfhummel@xxxxxxxxxxx> wrote in message
>news:qlteg1lr297dcc8rdd7r0gs5vhpc3r51op@xxxxxxxxxx
>> Why a Collapse of the Dollar is Unlikely
>>
>> Foreign investment in the U.S. will continue as long as the economy of
>> the U.S. grows apace with those of its trading partners. Indeed the
>> U.S. need be concerned only if foreigners no longer desire to
>> participate in, and own a share of, the U.S. economy. When they feel
>> they have accumulated more dollar assets in the aggregate than they
>> wish to hold, the forex value of the dollar will decrease as the
>> excess dollars are offered for sale. However a collapse of the dollar
>> is highly unlikely short of an environmental catastrophe or runaway
>> inflation that ruins the U.S. economy.
>>
>> William F Hummel
>> http://wfhummel.net/tradedeficit.html
>
>
>You are not saying why it is unlikely you are only saying that it is unlikely.

As long as the US economy remains strong, the US will continue to be
an attractive investment for foreigners. And as I explained in the
part you clipped out, there is so much foreign investment already in
the US due to the past U.S. trade deficits that foreign interests
would strongly oppose any significant drop in the forex value of the
dollar. For example, the central banks of Japan and hold over a
trillion dollars in US government bonds, They are certainly not going
to attack the dollar and forfeit the purchasing power of those assets.

The US is a major market for the economies of Japan, China, and the
Eurozone. Their economies would be seriously hurt if the US dollar
plummeted against their own currencies. Thus the likelihood of forex
value of the dollar crashing is virtually nil.
>
>Here is a possible scenario. Many foreigners now hold US mortgages. These are
>now becoming riskier as people put less down, interest only, etc. Some suggest
>a housing bubble which may collapse in some areas. It is possible that people
>will being walking away from their homes and mortgages in this situation -
>leaving the foreigners with losses. They begin to attempt to get away from
>this risky business and into other currencies - dropping the value of the
>dollar.

I don't see much connection between foreclosures on mortgages held by
foreigners in the U.S. and a drop in the forex value of the dollar.
If a foreigner lost his investment in a failed mortgage, he would have
no dollars to spend on other currencies, even if he were so inclined.
>
>Or a simpler one: Soc. Sec. privatization goes into effect and people become
>concerned about the ability of the govt. to pay off the large new debt.
>
I don't think SS privatization will ever happen. But even if it did
the government never has a problem covering its debts as long as they
are denominated in its own currency.
.

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