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Politics : Formerly About Applied Materials -- Ignore unavailable to you. Want to Upgrade?

To: Joseph Beltran who wrote (46362)	5/7/2001 1:47:56 PM
From: Fred Levine	Read Replies (1) \| Respond to of 70976

Joseph--re: <<these free trade agreements struck by the clinton (and other) administrations are soooo good for the u.s.a. why are we running (and have been running) a chronic trade account deficit? >> Once we recognize that money has no intrinsic value, and is essentially a unit of measurement, we should not fear a trade deficit. In fact, I think it is entirely to the consumers' benefit to have a deficit. We send the Chinese Japanese or whoever money and they send us TV's, cars, electronics and clothes. You can't eat, wear or drive money. They have to spend it and buy something from us and everyone gets richer. I am amused that people get upset about dumping, or selling below cost. All that means to me is that the, e.g., Japanese, taxpayer is subsidizing the American consumer. That hardly creates terror in my heart. fred

To: Joseph Beltran who wrote (46362)	5/7/2001 7:03:09 PM
From: Cary Salsberg	Read Replies (4) \| Respond to of 70976

The trade deficit is due to the strong dollar which was partially due to relatively high real interest rates. The 1/2 point Fed cuts should weaken the dollar and the weaker dollar and the slowing economy should lower the trade deficit. I agree with your bad feelings. Free trade is good for the world economy, but not necessarily good for many parts of the US economy. Free trade is definitely a plus for investors and entrepreneurs. In the US, free trade will be good for the best and the brightest, but the rest will see their salaries erode to the level of comparable skills in other countries. I have worried that a democracy cannot survive if a large part of the population is reduced to third world standards of living. Social welfare, such as subsidized housing, nutrition, medical care, child care, aged care, and higher education, will be necessary to maintain a safety net for many citizens whose full time jobs fail to provide an adequate lifestyle. I do not believe that a socialist society works as well as an isolated, integrated capitalist society where the members consume what they produce. I do think that large segments of the population living in third world conditions is more conducive to military dominated oligopolies than US style democracy.

To: Joseph Beltran who wrote (46362)	5/7/2001 8:52:51 PM
From: Jacob Snyder	Read Replies (2) \| Respond to of 70976

re: free trade: Free trade only works if the terms of trade are roughly equal, and trade between countries is roughly in balance. Chronic massive trade deficits are not compatible with free trade. Over the long term, trade has to be in balance. Something has to give. My guess is, it will be the dollar that gives. For a long, long time, we have been paying for our imports by letting foreigners own more and more of America. We have traded our current consumption, for their future consumption. If foreigners were buying our products with the money they get from selling things to us, then there wouldn't be a trade deficit. Instead, they just buy more and more U.S. Real Estate, stocks, and bonds. This is not a situation that it tenable, longterm. At some point, foreigners will start pulling money out of dollar-denominated assets. The dollar will start falling, and these two trends (foreigners taking their money home, and a falling dollar) will be in a self-reinforcing downward spiral. If foreigners start selling our bonds, this will cause a massive credit squeeze, because the U.S. has a negative savings rate. We depend for all (100%) of our capital needs, on foreigners. This downward spiral will only end when U.S. consumption has declined enough to create a positive savings rate, and a positive trade balance. The implications of that are not priced into stocks now, IMO.