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Pastimes : Clown-Free Zone... sorry, no clowns allowed
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To: pater tenebrarum who wrote (4544)7/19/2000 3:17:12 PM
From: Archie Meeties  Read Replies (1) of 436258
 
Maybe the market understands that a burgeoning trade deficit is the best way to keep inflation still.

For two decades at least we've continued an expansion of our money supply, and some of this money goes into foreign economic systems joined at the hip to the usd and economy.

The foreign CB actively buys dollars for several reasons; for one, they need dollars to buy crude, which settles in usd. So momentarily, a rising usd price of crude means holding or buying more usd. More importantly, if they didn't actively hold dollars and instead used them to buy their own currency, their economic structure would collapse along with the rise in the dollar price of their exports.

So the trade benefit is actually beneficial to us from the inflation front - as long as we can continue to export inflation via dollar creation. This whole process, however, can be undone by rising import costs driven not by currency flux, but by a rise in raw materials. Cheap oil is necessary to keep domestic inflation tame, both from an internal rise in prices, but also from a rise in cost of imports.

The solution to this, of course, is faster dollar creation and the cooperation of foreign CB, who will need to hold them in increasing amounts to continue to devalue their own goods.

Is this what Moto said?
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