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Politics : Foreign Affairs Discussion Group -- Ignore unavailable to you. Want to Upgrade?

To: neolib who wrote (161233)	4/29/2005 12:03:53 PM
From: Hawkmoon	Read Replies (3) \| Respond to of 281500

Imagine if the choice of investments were decoupled from employment. Lets say that the balance of trade amongst the nations was essentially even, no one nation building a deficit with any other one. But the differences in corruption and transparency, etc were still there. Let's imagine the imbalance of trade between urban and rural economies. Or we can imagine the imbalance of trade between entire regions of the US, such as California versus the South. Or even better, let's visit back to 1945, when the US economy accounted for 50% of total global GDP. There was a huge trade deficit at that time, as I recall. It was necessary for the US to act as the buyer of last resort in order to spur economic growth in these nations. And some of these nations, such as Britain, had a TREMENDOUS national debt (250%xGDP) to pay back, including debt owed to the US. But the real reason there's a trade deficit is because the US dollar has been buoyed up as a FOREX inspired economic subsidy program. It was macro-economic policy driven by the Fed during the late 1990's in order to mitigate the damage caused by the collapse of the Asian Tigers. As I recall it the Fed decreased liquidity and raised interest rates, causing a climb in the $$$. The supply of $$$ also did not meet the demand for them, as capital sought a safe haven from overseas. But now we're seeing economic growth and recovery in many of these peripheral economies and the dollar is facing more competition. Which is why, in part, we're seeing falling economic growth in Europe and Japan, and likely reduced growth levels in other developing economies. But then there are countries such as China, who refuse to decouple their own currency from the $$$, and permit their currency to float on the global markets. There's going to be a price for that someday, IMO. And it may spark another flight to quality in the US $$$ once again.. In sum, T-bills are a respository for capital for which these exporting countries cannot find better investment vehicles. And now they are just as addicted as we are to their purchases of US government debt. Their own currencies would sky-rocket (making their exports more expensive). And I agree with you, it's tough to analyze all the factors that go into these macro-economic decisions. Many of them are dependent upon the human psychology of the people running the corporations and agencies. Hawk