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Politics : Politics for Pros- moderated

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To: LindyBill who wrote (89233)	12/4/2004 3:04:58 AM
From: frankw1900	Read Replies (1) of 793983

We have stuck them. Actually, they've stuck themselves. The point of exporting is to get imports. They don't buy enough imports from the US to use up more of their US dollars. It's not totally blindness on the part of the Chinese because their domestic price level isn't high enough to buy US produced stuff, yet. The Japanese, on the other hand, can afford it but don't do it. Plus, of course, the US economy is so big that there's no way either country can achieve even balance of trade with the US. The aim of the Bush administration is obviously to grow the US economy so much that government revenues will overtake debt and deficit thus putting the fiscal house in order. It's very likely this can be done. In the meantime the export driven prosperity in those countries comes at the cost of holding US dollars. The natural state of affairs is that the US dollar will revalue lower with respect to Chinese and Japanese currencies since US businesses are buying them at a greater rate then those countries' businesses are buying US dollars. The Chinese and Japanese want to escape the consequences of this: lower profits and possibly falling exports to the US as prices of their products rise there. And, of course, greater competition from US products due to lower dollar. They want to escape the business cycle or at least, the import export cycle. Among countries that are accumulating dollars - especially China - grumbling is on the rise that Washington should do more to protect the value of their investments by cutting the budget deficit and adopting other policies to slow or reverse the dollar's decline. "Shouldn't the relevant authorities be doing something about this?" asked Prime Minister Wen Jiabao of China at a conference in Laos last Sunday. Be careful what you wish for. There's hardly any US inflation, so Greenspan hasn't been growing the money supply too quickly, and as far as I can tell, has been letting the markets deal with interest rates. Government deficits and debts aren't a huge problem if debt holders have confidence they can be serviced. So far the US has had a good record doing this in modern times by growing itself out of the debt. Something is going to be done which might give PM Wen an answer to his question. Social Security reform might raise the US savings rate a little but will likely lead some of those savings into more productive investments thus increasing US prosperity.... As far as I can tell the world is unfolding as it should. I'm positive that if I'm wrong about this someone will be happy to correct me.

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