Ultimately the countrys currency will suffer IMO the dollar will be no exception
It certainly can... but then the goods we produce will be more competitive in other countries. And those goods which we have come to depend upon from overseas become more competitive to produce domestically.
But a couple of factors here... the dollar has seen increasing strength over the past year for a variety of reasons, not the least of which was economic growth in the US. It also increased in value because of Y2K uncertainties overseas, when it was pretty obvious that the US would weather the date turn relatively unscathed. That perception was nowhere that clear with foreign economies 12 months ago (and I know this for a fact from personal conversations with folks at the State Dept who handled Asian Y2K coordination). Furthermore, the increase in oil prices forced nations to sell their own currencies and redenominate into the dollars, which oil is priced in.
Now you're absolutely correct that no nation can continue to run a current accounts deficit forever. But break down that trade deficit and ask what the largest portion of it consists of... Oil imports. And that is due primarily to the US having absolutely no genuine energy policy and our dependence on foreign oil rising to 60% of total oil usage. Hike the price of oil and your current accounts deficit climbs.
But one more point though... Having a such a trade deficit is also indicative of competing economies either not having the wherewithal, or the desire, to conduct free trade. They may not be economically sound enough to buy the products we produce, or they may have tariff and quota barriers in place. All signs of a less competitive and healthy economy than ours.
In sum, they are depending on our markets to sustain their economic growth. But when our markets slow down and we stop buying anything but the necessities from them, their economic growth deteriorates as well, if not to a greater extent because of the facade of economic strength being able to sell into our markets provides them.
And I'm telling you that the Euro is not a real competitor to the US dollar until Europe forms a Federation and displays unity of purpose and direction. The inherent political risk of having a confederation of disparate and quarreling nation states who have to rely on unanimous consensus to formulate or act out economic policy is just not as safe a financial haven as the US.
As for Austrian economics, I figure that European economics is responsible for many of the major problems this planet has endured over the past several hundred years. We certainly can see this evidenced in the "beggar thy neighbor" protectionist policies of the '20s and '30s.
My theory is that if their economic policies are so great, how come they aren't as economically powerful as the US, Japan (at one time), or other nations.
Results, not theory, is what eventually matters.
Regards,
Ron |
