They give us goods and we give them paper that is worth less then it was months ago, and your problem with this scenario is what? -g-
The trade deficit is measured in nominal dollars. So even with the dollar dropping in relation to other major currencies the deficit and foreign investment went up. How can that be, the falling dollar was suppose to make foreign goods more expensive!?
Here's the rub, the dollar is down against the majors but it's holding it's own against the low cost producers.
Here's what a friend wrote about the situation:
The dollar recently traded below last July's low measured against major currencies, but the dollar measured against the non-major currencies didn't. The non-majors chart has put in a higher low and so has established "rizing buttums". Who are the majors? Euro, Canada, Japan, Swiss, Sweden, Aussie, UK. Non-majors include China, Russia, Latin America, Mexico, all Asia except Japs. The low cost capitalist producers have relatively weak currencies against the dollar, and the socialists are rallying. It's all interest rate differentials. The Tigers have low rates and the Reds have high ones. Thus the dollar has no consequence for investment capital flows because the effective rates among the Reds is too low to prefer lending over investment. In conjunction with parity in world labor rates the investment preference will keep the Virtuous Cycle in tact. |
