Another trade deficit record has been set
Mike, I've enjoyed your running commentary on the overall markets.
I just wanted to step in here and ask why so many people are concerned about the trade deficit?
Afterall, the fact that the dollar has strenghthened makes it far more attractive to import goods versus manufacturing them here and it would only make sense for this to happen. We saw the same situation directly after WWII when the dollar ruled supreme around the world and everybody was seeking access to US markets (which constituted some 50% of global GDP at that time).
So while we have an expanding trade deficit, I don't see a problem so long as no other currency or economy represents a more favorable environment for global investment dollars.
In fact, the Euro is getting crushed because they are disorganized politically and economically. While we have some serious issues facing us here in the US, the Europeans are facing TREMENDOUS difficulties, which are only exacerbated by their social liabilities down the road.
The Japanese share a similar problem. Currently hosting a national debt equivalent to approx 130% of their annual GDP, they are certainly the world's greatest debtor nation per capita. Additionally, they are in a liquidity trap that no amount of government deficit spending seems to be able to overcome.
On top of that, they face demographic problems as well, with an estimated 25% of the population being at retirement age in approx 5-10 years. With a current unwillingness to diversify their homogenous society, labor costs will soar with any economic recovery due to a shortage of manpower.
Combine the two above conditions for Japan, high debt and a shortage of labor - most Japanese have saved for their own retirement, not having the governmental entitlements prevalent in Western economies -, and we have the makings of a currency devaluation in the Yen and higher tax rates on fewer workers in order to service their debt.
So I guess to reiterate my question, just where are people going to invest their money, if not in the US?
The only alternative I see is gold, and I can't see that with low inflation and continuing deflation in a ever competitive economic environment...
So Mike, I hope you'll tear the above premises apart and tell me where I'm screwed up in my analysis...
Regards,
Ron |
