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Politics : Formerly About Applied Materials
AMAT 266.73-0.4%11:35 AM EST
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To: runes who wrote (69930)4/23/2003 12:52:44 PM
From: Sun Tzu   of 70976
 
I don't like the simplistic light in which the trade deficit and foreign debt are often portrayed in. Here is the bottom line: USD, like every other fiat currency in the world, is intrinsically worthless; we can print as much of it as we want. Given that, it is always in our interest to have others accept this worthless paper in exchange for as much hard goods as we can get our hands on. When you have a strong dollar and a high trade deficit (or foreign debt), it means the above scenario is taking place. When you have high deficit and weakening currency, then the opposite is true and the foreigners have you by the balls. And finally when you have a strengthening currency and shrinking deficit, then things are improving and going along the naturally. It is not the trade deficit or the strength of dollar that directs economic activity. It is the other way around.

Our problem is that we have had governments that does not really believe in Capitalism. It uses taxation to redirect economic activity and it uses currency policy to solve domestic economic problems. You could argue that this administration is letting markets find their equilibrium or you could argue that they are allowing USD to weaken so as to improve domestic economy. We won't know what is going on in their heads (unless Zonder has quotes to grace us with <g>). The job of the government must not be to fight the direction of the economic trends but to smooth out the sharp bumps in it.

ST
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