WHY IS THERE SUCH A LARGE TRADE DECIFIT THEN?????
Since when does buying stuff from other nations automatically equate to being in debt to them?
I thought that was called a balance of payments issue.
Maybe I'm missing something here, but it would seem to me that exporting nations have more to fear from a decrease in US consumer confidence, than Americans do.
We are buying their products because they are less expensive that what we could produce here. In return, they are taking US dollars which they then reinvest in US markets.
If they choose not to hold US assets any longer, then is strikes me that the dollar will decrease in value, thus making our products more competitive versus theirs in the trade game.
The key here is that THERE IS A REASON that other nations are accepting US dollars as opposed to other currencies. They know that their own economies are heavily reliant on export markets and that their own domestic demand will not support their economic growth.
Again, the next time you think about trade deficits, recall how the US consisted of 50% of total GDP at the end of WWII. We were fully 1/2 the global economy at that time and EVERYONE was running a trade deficit with us.
The trade deficit is not really our problem, it is EVERYONE ELSE's problem because it is indicative their economies can't compete with regard to rate of growth.
If they are going to end up saving more money to buy stocks and sock away for retirement, they'll have less money to spend on consumer goods, thus lowering the profits
Again, so long as rates of unemployment remain low, then people will have discretionary income to sock away into retirement funds. Should they choose to forego that in light of current market conditions, then they will have more to spend on consumerism.
It will be interesting to see if there is a shift of money out of retirements and back to consumerism...
Btw, one final point on the trade deficit... If, as you claim, other nations are loaning us the money with which to finance our consumerism, then who is more at risk in the event of a default, them or us?
Or a better example... if you know hyper-inflation is about to break out and you have a guaranteed income or inherent wealth, the best thing you can do is borrow heavily and pay back your loan with "cheaper", inflated dollars.
People made fortunes in real estate during the '70s doing just that.
Regards,
Ron |
