Hi Don, fwiw, here's my take on it:
Increasing imports+decreasing exports = higher trade deficits.
The higher trade deficit by itself exerts downward pressure on the US$, because our trading partners, by running a surplus, are holding more US$ than they were holding earlier.
Recently, this downward pressure on the $ has been more than countered by capital flows into the US, because of high real interest rates here. Result is that we have financed the trade deficit, and the $ remains strong.
However, if this capital flow was to reverse due to lower interest rates here, then we no longer have the counter effect, and the $ should fall.
What Seidman might have been saying is that even if capital flows do not reverse, a balooning trade deficit would cause downward pressure on the $, because we would be flooding foreign economies with dollars to pay for our imports.
Hope that helps.
Vince |
