Westpac,
"Trade deficit" is just another piece of useless government statistic. Lets take for example, the imaginary state of El Dorado, which, like a simplified version of South Africa, produces and exports nothing but gold. Gold is not edible, nor wearable, yet the rest of the world happily and willingly supply El Dorado with food, clothes and building material in exchange for its gold, the implicit global currency in that world. Now look at our own world, the US contributes to the world economy by exporting the US Dollar, which has been more valuable than gold over the last decade (in 1990, gold was around $380 per ounce, now it's near $260). There is no trade deficit! Would you consider El Dorado having a trade deficit just because it pays for everything with something that has no intrinsic utilitarian value? The rest of the world buys into El Dorado's gold because their collective faith in El Dorado managing a stable gold supply rate. For the similar reason, the rest of the world buys into the US Dollar because of their collective faith in the USD's stability and flexibility; the US offers the most extensive financial intermediation industry. The real danger arises when some manufacturing guy in charge attempts to devalue the dollar or put up protectionist measures and break that implicit faith and trust in the process, like the idiots in charge in the early 70's did when they broke the Brentwood system in a misguided attempt to combat "trade deficit."
Jim |
