Re: The U.S. Trade Deficit
- From: "Bill" <xxx@xxxxx>
- Date: Mon, 22 Aug 2005 04:21:30 GMT
"The Trucker" <mikcob@xxxxxxxxxxx> wrote in message
news:debgo80qmn@xxxxxxxxxxxxxxxxxxxx
> "William F Hummel" <wfhummel@xxxxxxxxxxx> wrote in message
> news:coofg1t793f0umfvf52macrk6nit20it57@xxxxxxxxxx
>> On Sun, 21 Aug 2005 00:21:22 GMT, "Bill" <xxx@xxxxx> wrote:
>>>
>>>"William F Hummel" <wfhummel@xxxxxxxxxxx> wrote in message
>>>news:539fg1p4llcfshb83esgbjkmhkndg10c8d@xxxxxxxxxx
>>
>>>> On Sat, 20 Aug 2005 20:55:12 GMT, "Bill" <xxx@xxxxx> wrote:
>>>>>
>>>>>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.
>>>
>>>The banks may not have control. In the end the markets - including currency
>>>speculators - have a major role. But it does not have to be a rapid drop
>>>off.
>>>Could be slow.
>>>
>> The Bank of Japan has shown that it can keep the dollar/yen exchange
>> rate under reasonable control by buying huge amounts of dollars in
>> recent years.
>
> It is assumed that they are swapping yen for dollars. Who
> is it that ends up with the yen? Who is selling the dollars?
> It is implied that many people would rather hold yen than
> dollars. But it is the BOJ that is buying the bucks. The
> yen are created from the ether or drained from Japan's
> banking system as the dollars are purchased, one would
> assume, on the open market. The resulting value of the
> yen and the dollar will depend upon the source of the
> yen used for the purchase and the disposition of the yen
> and the dollars by their new owners. If these yen are created
> by the BOJ then the yen stand a higher chance of falling in
> value than if the yen employed to buy the dollars are drained
> from the Japanese banking system. And in either case it
> will depend upon what the new owner of the yen does with
> the yen. If the yen are not used to buy Japanese national
> bonds or Japanese T-Bills then the value of the yen will
> fall. It is assumed that the BOJ will use the dollars to
> buy US T-bills thus sterilizing the dollars and raising the
> value of circulating dollars.
>
>>>>>
>>>>>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.
>>>
>>>They get some money out. Try to sell whatever securities they have left. No
>>>more new investment in mortages for sure. Not many good places to put the
>>>$s
>>>they are getting from selling goods. $ begins to drop, causing a sell off.
>>>
>> There are plenty of good investments for them to put their dollars
>> aside from real estate.
>
> Like what?
>
>>>>>
>>>>>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.
>>>
>>>So your argument is that the govt. can go into as much debt as it wants
>>>with
>>>no consequences.
>>
>> I never made such an argument. In any case, no one knows how much
>> debt might create a problem because we have never encountered that
>> limit -- if indeed it actually exists.
>>
>> The US debt/GDP ratio is now about 0.37. In 1946 it was about 1.14,
>> whereupon the economy went on a tear for the next 25 years.
>
> There was a tax system in place that took advantage of that
> "tear" to pay down the debt. We will note that the tax did
> not seem to interfere with the "tear" and the fact that the debt
> being retired also did not interfere with the "tear". All seemed
> to go quite well until the Kennedy tax cuts and the Vietnam
> misadventure and the Johnson War on poverty. Yet monetarists
> and supply-side nincompoops seem to want to claim cause and
> effect based on their particular religious tenets.
>
>> The
>> Japanese debt/GDP is now about 1.35, far higher than it has ever been
>> in the US, and their long bonds are selling at yields of less than 1%.
>
> There is also a full moon.
>
>>>Why collect any taxes at all? Why not just borrow the money?
>>
>> The government's intrinsically worthless fiat money is valuable to the
>> private sector because that's what the private sector must surrender
>> in paying its taxes. Otherwise there would be other forms of money in
>> general use, such as bank notes. Also if taxes were not collected,
>> the government wouldn't be able to sell its bonds, so the alternative
>> you postulate is not realistic. The enforced collection of taxes is
>> essential to a working fiat money system.
>
> And when Pinocchio stops collecting taxes from people
> who "have money" then the money is worth less and
> less.
>
>>>
>>>One reason is inflation. That essentially drops the value of the dollar
>>>relative to other currencies.
>>>
>> Yes, a high inflation rate will cause the forex value of the dollar to
>> gradually drop. However there is no significant correlation between
>> the debt and inflation. For example, Reagan and Bush quadrupled the
>> debt during the period 1981 - 1992, but inflation trended downwards
>> through that 12 year period.
>
> If one measures inflation as the cost of wages then it is
> possible to pull all kinds of rabbits out of the hat; to
> claim that there is no inflation even while the cost of
> a home and the cost of energy and the cost of food
> rises. How many times do we here "inflation (not
> counting the volatile food and energy sector) is
> under control. So long as all the excess is taken in
> rent and sterilized via bond purchases the working
> people get the shaft and "inflation is under control".
> Yet the dollar is worth less and less on the forex
> and gold prices and land prices and oil prices as
> measured in dollars are all rising. What is cause
> and what is effect? Well, Pinocchio creates more
> and more taxes and offers more and more tax breaks
> to the rich. That seems to be the cause of the decline
> in the value of the dollar. But again, if you define
> inflation as a rise in wages, then we have no inflation.
>
> --
Here is a curious fact, FYI. Housing costs are 30% of the CPI (much more of
the core CPI.) How much have housing costs gone up since Bush came into office
a little over 4.5 years ago? Ans. about 11% - so something less than 3%/year.
How can that be when everone knows that the housing prices in many major
markets have risen a great deal? Ans. because in the CPI they don't use the
prices of houses when calculating housing costs.
They use rental costs only and the ratio housing prices to rental costs has
been increasing in many areas as people move out of rentals to cash in and
people build to rent to cash in.
Bill
> "I know no safe depository of the ultimate powers
> of society but 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
>
>
>
.
- References:
- The U.S. Trade Deficit
- From: William F Hummel
- Re: The U.S. Trade Deficit
- From: Bill
- Re: The U.S. Trade Deficit
- From: William F Hummel
- Re: The U.S. Trade Deficit
- From: Bill
- Re: The U.S. Trade Deficit
- From: William F Hummel
- Re: The U.S. Trade Deficit
- From: The Trucker
- The U.S. Trade Deficit
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