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Strategies & Market Trends : Booms, Busts, and Recoveries

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To: Ilaine who wrote (7357)	8/19/2001 1:03:10 AM
From: elmatador	Read Replies (3) of 74559

Now back to answering 5. Sorry for the delay, had a busy Saturday. I agree with your statement but by different reasons. You say: 5. "The strong US dollar enables more imports/foreign exports to the US, and fewer exports from the US, but the US economy won't really notice it all that much because - see # 3." Elmat says: I think is much more complicated than that. I would say that you are right only for the agricultural goods that the US exports. But prices affected by devaluation of USD can be taken care of. Example: In the US economy (or politics) and its dependence on farming sector, remembering that: "The $73.5 billion farm bill that would automatically funnel more money to growers when prices fall may be debated by U.S. House of Representatives in early September." If you would permit to re-write that it would be like this: 5. "The strong dollar (USD) makes foreign goods cheaper in the US and US goods costlier in foreign markets." Then it becomes interesting because: a) The dollar -which prices crude oil- is being devalued and petroleum gets cheaper in currencies not pegged or loosely pegged to the USD and the US is in the oil business all over the world. b) US imports are exports of US firms based abroad. Semiconductors. Car parts, sporting goods etc, all US companies foreign based. And the Hong Kong dollar, the Argentinean peso and the Brazilian real -there are others- are pegged to the dollar they are being devalued too. c) The US firms produce in foreign markets and are importers and exporters in those foreign markets. Goodyear -apart from the US- produces tires in Thailand, Indonesia, Brazil, Mexico. The company has internal traders (G. Zaccardi would call them speculators) that buy and sell tires based in which country is more competitive at a given moment. Example: when the Indonesia Rupiah collapsed Goodyear could beat any competitor selling tires form Indonesia. When the Brazilian Real drops Brazilian tires become more competitive and so it goes. SUMMARY: The US economy won't notice very much the USD devaluation because the US economy is tightly woven integrated with the economies of the rest of the world. GDP would say more accurately about the size of an economy when we had much more economic borders than today. In an integrated world economy the figure of a US 10 trillion dollar-size economy has to be taken with a grain of salt. This figure is the size of the US share of the whole world economy. That's because you can't easily pinpoint exactly where you count the 'ownership' of a given part of the Gross 'quasi-domestic Product. Where is -accurately- accounted for the case of GM that has a financial arm that finances car dealerships and cars all over the world? It is not only the USD in circulation within the US that is being devalued. That big pile of foreign reserves of Taiwan, Hong Kong and China are devalued vis a vis other currencies. I think this also answers 6. The US is trading dollars for goods - and the dollars are stacking up outside the US. Only keeping in mind that when the USD is devalued, the foreign reserves kept in USD are also devalued too.

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