Two issues, first after world war II we did not run trade deficits (I believe we had surpluses until the early 60', but not sure about it), the Marshall plan stipulated that the money be used largely to buy US goods (many of the US subsidies to less developed countries still have that stipulation).
As for the deficit and if and when it could cause a drastic decline in the Dollar and thus repatriation of funds to their foreign owners, as I have mentioned to Henry, there will be a point where the trade deficits are so large that confidence in the US dollar may wane, even if only temporarily, and due to the huge international markets in currencies and the ease of moving from one currency to the other, flight from the dollar may occur due to excessive trade deficit. I do not see that as an immediate problem and not a source of the bear market next year. Next year's bear market will be IMHO, mostly a partial return to the "norm" of valuation, followed by another "Mini bull move" starting, who knows, I have August and worse case October as the bottom of this bad bear. By then the Euro will have tempted parity with the dollar, while the Yen may decline to the 120 /130 yen to the dollar range. Sometime in the next two three years, however, I fear the Euro may actually disintegrate, and if that happens, and Europe develops few "dominant currencies" like the Deutchmark and possibly the Sterling, and in congruence, the Japanese economy reaches its own bottom and the yen starts back from the 130 level or so down at the same time, then the conditions might be ripe for another bear market in the US and this time, it may be precipitated by "loss of confidence" and by then very excessive monthly trade deficit in the $40 B range or higher, when the dollar could go to eventually under 100 yen to the dollar, and the equivalent of 1.20 Euro to the dollar (the Euro may still be around as a measure, but no longer as a dominant currency with its own monetary authorities).
I realize that this is very unorthodox thinking, but it fits with my long term thinking of the US markets stagnating for a long time (possibly another 5 to 7 years) in a wide trading range, my long held opinion that the EURO Was a catastrophic folly, and my long term held opinion that Japan will eventually clean its house or face deep deep troubles.
Zeev |
