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Politics : Stockman Scott's Political Debate Porch -- Ignore unavailable to you. Want to Upgrade?

To: lurqer who wrote (29368)	10/2/2003 9:10:32 AM
From: lurqer	Read Replies (1) \| Respond to of 89467

From "Please, Lend Us Less " Concerning the United States, the language of global finance is backward. It is said that we “borrow” abroad and “need to attract foreign capital.” In truth, foreigners are eagerly lending to us, mainly for their own reasons. In an accounting sense, their lending covers a big part of the U.S. budget deficit. But in ways that matter more—in an economic and social sense—their lending costs us, because it reduces domestic production and employment in the United States. Some Americans gain from inexpensive imports, while others lose through eliminated jobs and reduced profits. This was not always so. The dollar plays a unique role in the global economy. It serves as the world’s main currency for trade and cross-border investment. The need for dollars—by foreign companies, banks and governments—partly explains routine U.S. trade deficits since the early 1980s. This demand has kept the dollar’s exchange rate too high to produce a trade balance. By itself, a modest trade deficit is unthreatening; when the U.S. economy is at “full employment,” extra imports may curb inflation. But in recent years, weak foreign economies and conscious currency strategies have held the dollar at excessive levels. The result: Despite a faltering U.S. economy, the broadest U.S. trade deficit (the “current account”) has expanded to 5 percent of gross domestic product. The huge foreign investments in U.S. Treasuries are one outgrowth. They are more than a freak fact of global finance. They symbolize a dangerous and potentially destabilizing dependency by the rest of the world on the American economy. The threats to stability are plain. If the United States loses too many jobs abroad—through imports and outsourcing—then the U.S. economic recovery might stumble. Or if some event shook faith in the United States, foreign owners of U.S. stocks, bonds and Treasury securities might try to unload their American investments, triggering a financial panic. Neither possibility is inevitable; both are conceivable. Americans would be better off if foreigners lent us less—and if foreigners could, it would signal a sounder world economy. from msnbc.com lurqer