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Strategies & Market Trends : Booms, Busts, and Recoveries -- Ignore unavailable to you. Want to Upgrade?

To: critical_mass who wrote (66267)	7/16/2005 11:06:22 AM
From: Moominoid	Read Replies (1) \| Respond to of 74559

I don't know, working out what is going on and why in the foreign currency markets seems to have stumped everyone and I am just an "amateur" observer and participant. I'm an economist but not in that field and I have investments in Aus and the US but don't actively play Forex. As a very rough guess and speculation I figure the USD will keep rising (and the US stockmarket will fall) until the Fed stops raises interest rates. That will be when they get close to inverting the yield curve I guess i.e. 4%. I'm pretty certain they won't go to the point where they invert the yield curve. Not on purpose anyway. That will happen if long-rates fall. But Bernanke basically is saying the US has a deficit because everyone is saving too much and have to put their money somewhere so it is the US they choose and the inward flow of investment has to balanced by the trade deficit. So I guess that bids up the US dollar and makes imports cheap in the US (despite the fact that till this year the USD has been falling for a couple of years or so). I think there are a lot of rational reasons why saving is low in the US, but say Americans suddenly all decide to save more what will happen to the US trade balance? I can't see that it is just foreigners saving behavior that is driving the whole thing, this doesn't make any sense to me. Here are some ideas for dealing with the US trade deficit though: 1. Abolish Social Security 2. Tax the hell out of capital gains (certainly abolish the exception for owner-occupied housing) 3. Raise the estate tax 4. Encourage population growth to stop the aging of the population hmm these may not be good policies :) But they will raise the US savings rate IMO.