Regarding the US trade or current account deficit, Erik Reuter
<[EMAIL PROTECTED]> wrote
... Americans aren't saving enough.... America is borrowing money
from abroad in order to buy foreign goods. The governments of many
of the Asia-Pacific countries believe that they can only keep
their economies growing briskly if they continue to export large
amounts of goods to America. ....
The current account deficit in 2004 will be about 5.7% of GDP ....
This is not sustainable.
Actually, it is much worse than it sounds ... Increasing exports
enough to make a significant dent is not really possible -- as the
US has switched to a service-oriented economy ....
This is interesting and depressing. You are saying that the US cannot
increase exports enough, so imports must eventually drop. This means
that goods that have been manufactured abroad and imported must begin
to be made in the US. Either that or the standard of living must
fall.
To prevent a drop in the standard of living, how much money will have
to be invested in the US? Over what time period?
The only hope is that the dollar can continue a steady decline and
that long-term interest rates start to go up ...
Yes. But what if the decline is not steady?
How likely do you think is a steady decline?
How likely do you think is a sudden decline?
How likely do you think is a rise?
What if (for whatever reason) non-central bank foreigners decide that
the US is not a better place for money than, say, western Europe?
(For example, perhaps their `precautionary' motive shifts to favor
western Europe.)
Can the central banks of China and Japan intervene sufficiently to
prevent a drop of the dollar?
Will raising US Fed interest rates to, say, 6% reverse a flow away
from the US dollar for more than 2 years?
(Right now, so I am hearing, an anticipated increase in US interest
rates, and corresponding drop in the value of bonds, is expected bring
foreign money to the US, thereby raising the value of the dollar. The
subsequent slowdown in the world economy is expected to hurt China,
Europe, and Japan more than the US. Do you think this expectation is
true; and if so, for how long?)
--
Robert J. Chassell
[EMAIL PROTECTED] GnuPG Key ID: 004B4AC8
http://www.rattlesnake.com http://www.teak.cc
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