Re: The U.S. Trade Deficit
- From: William F Hummel <wfhummel@xxxxxxxxxxx>
- Date: Sun, 21 Aug 2005 19:05:23 -0700
On Sun, 21 Aug 2005 20:15:06 -0400, "Dan in Philly" <djr8@xxxxxxx>
wrote:
>"William F Hummel"wrote in message ...
>
><snip>
>
>Good post, just a comment or two:
>
>> The U.S. does not seek to borrow from its trading partners in order to
>> support its trade deficit, as is often claimed. Rather the trade
>> deficit reflects the desire of foreigners in the aggregate to increase
>> their holdings of U.S. dollar assets.
>
>I think this misrepresents the case. Foreign countries are mainly concerned
>with propping up a few industries they've had success at -- textiles,
>autos -- so they keep their currencies undervalued, which necessarily
>requires official buying of US assets. (these 'mercantilist trade policies'
>were discussed later in WH's post)
Yes, foreign countries are concerned with propping up favored
industries by undervaluing their currencies, among other things. But
I think you have the order reversed in your analysis. For example,
Japan and China have a big and increasing trade surplus with the US.
Their central banks have to buy up a large portion of the dollars
their exporters are earning just to soak up the excess which would
otherwise cause the dollar's value to drop.
>
>> However a collapse of the dollar
>> is highly unlikely short of an environmental catastrophe or runaway
>> inflation that ruins the U.S. economy.
>
>I don't think it's unlikely; the forex market, like any other asset, market,
>is prone to fads and speculation. But I don't think a dollar crash would
>have much effect on the US.
I don't know how you define a dollar crash. The value of the dollar
may fluctuate sharply at times due to the influence of currency
speculators. But I don't see any likelihood of a collapse, by which I
mean a panic exit of the dollar. The US economy would have to be in
serious trouble for that to occur, like a runaway inflation. There is
far too much foreign investment in the dollar for a collapse to make
sense due to speculation alone. Furthermore a collapse would hurt
most other countries much more than it would hurt the US.
>Most commerce in the US is strictly internal: produced by Americans and
>bought by Americans.
That is essentially right. In 2004, the US spent about $1.5 trillion
on imports out of a total GDP of about $12 trillion. That's only
12.5% of the economy, small compared to most other industrial nations.
.
- References:
- The U.S. Trade Deficit
- From: William F Hummel
- Re: The U.S. Trade Deficit
- From: Dan in Philly
- The U.S. Trade Deficit
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