Mish's Global Economic Trend Analysis Message Board

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Strategies & Market Trends : Mish's Global Economic Trend Analysis

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To: Knighty Tin who wrote (21111)	1/12/2005 12:37:39 PM
From: benwood	Read Replies (1) of 116555

I seem to recall Russ arguing rather strenuously a few months ago that a weaker dollar would, at least in the short term, cause the trade gap to explode. Made sense to me since domestic manufacturing won't spring up overnight and because the manufacturing costs in the US are still dramatically higher than overseas. If a dollar drop causes a rise in prices, I believe for quite some time it will not affect purchasing decisions because so many American consumers have such a loose relationship in their minds between income and expenditures, between cost and value, and between want and need. These people are seemingly immune to price hikes caused by a devaluing dollar and will remain so until hit with a hammer -- a vaporized refi market or real estate collapse (a slow grind will do); a missed payment that explodes their credit costs thanks to universal default; or perhaps bankruptcy. And where price hikes aren't possible, a common feature in our world of overcapacity, the import cost basis of an item will go up even if the retail price does not, thus raising the trade gap even if retail sales remain flat.

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