Re: US/Russia Space Troubles
From: Ed Kyle (edkyle99_at_hotmail.com)
Date: 01/15/05
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Date: 15 Jan 2005 09:23:08 -0800
Fred J. McCall wrote:
> "Ed Kyle" <edkyle99@hotmail.com> wrote:
>
> :
> :The governments of China and Japan, especially, have
> :been buying dollars and Govt. bonds to keep the dollar
> :from dropping in value. If they were not doing this,
> :the dollar would be worth much less than it is, and U.S.
> :goods would be much more competitive on the world
> :market (and imports would be much more expensive). As
> :the trade deficit has grown, their dollar-propping has
> :also had to grow. The fear is that they eventually will
> :be unable to prop fast enough, and the dollar will jump
> :suddenly to its equilibrium point (a bad thing that
> :could cause economic chaos).
>
> I'll simply note that all governments do this sort of thing with
> various currencies, from time to time.
>
> :> :The problem is, in my view, that
> :> :the status quo (now $2 billion trade deficit per day)
> :> :cannot persist.
> :>
> :> So your problem is the current account deficit and not the budget
> :> deficit?
> :
> :The current account is a bigger problem right now.
> :
> :> :Economists have been saying that we
> :> :are nearing a break-point, perhaps this year.
> :>
> :> Cites? I'd like to know which economists are saying this.
> :
> :New Years Day Chicago Tribune Business Section.
>
I no longer have the Jan 1 paper, but the Jan 15
Chicago Tribune revisited the issue. It said that
the federal current account deficit "has grown to
almost 6% of GDP, a level many economists -
including Federal Reserve Chairman Alan Greenspan
- think is unsustainable. ... For the last several
years, China and Japan continued to gobble up U.S.
Treasury bonds at relatively low rates because they
want to keep the dollar from falling against their
own currencies ... On Thursday, New York Federal
Reserve Bank President Timothy Geithner joined a
chorus of Fed officials in warning that the U.S.
can't count on foreign borrowers to prop up the
dollar and hold down [interest] rates forever.
"The present fiscal trajectory entails an
uncomfortable scale of borrowing and little
insurance against possible adverse outcomes in
an uncertain world", he said."
When a Fed official uses words like "adverse
outcomes", it means they are worried.
- Ed Kyle
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