Wednesday, January 26, 2005

I can't think in dollars

Despite the earlier warnings, the American debt has deepened; the nation's trade deficit is expected to reach a record $600 billion for 2004. The Bush administration has promised to restrain spending in its new budget and has called on China to revalue its currency against the dollar to make Chinese exports more expensive, which in turn should help shave the United States trade deficit.

But the United Nations report said the problem is more complicated. Depreciating the dollar may spur growth in the United States and spur more consumer spending on foreign goods. But a greater drop in the dollar could hurt the very economies of Europe and Japan that need to grow in order to purchase American exports and help right the huge American trade imbalance.

The result would be more of the same for the United States trade deficit.

Instead, the United Nations report urges all the major industrial countries to work out a solution that will help the United States reduce its trade deficit by spurring their own economies to grow faster, especially Japan and the countries of Europe.

"What we really need is a major advancement in cooperation among the advanced economies to help the U.S. get out of this problem," said Mr. Ocampo.
  NY Times article

What problem?
Treasury Secretary John W. Snow already plans to ask for immediate help from his wealthiest trading partners at a meeting next week in London of the Finance Ministers and Central Bank Governors of the Group of seven most advanced industrial nations.

Mr. Snow said in an interview that he would tell these countries that if they are concerned about the American trade deficit they should purchase more American goods and services.

See? No problem.
The United States has amassed a debt without precedent. The International Monetary Fund calculates the American current-account deficit - the broadest expression of the trade and financial flows into and out of a country - stands at $631 billion, or 5.4 percent of the nation's gross domestic product.
"Depreciating the dollar may spur growth in the United States and spur more consumer spending on foreign goods. But a greater drop in the dollar could hurt the very economies of Europe and Japan that need to grow in order to purchase American exports and help right the huge American trade imbalance."

How can we be "spurring more consumer spending on foreign goods" in the U.S. by depreciating the dollar? If our dollar is worth less, the foreign goods effectively cost more, don't they? Plus, if we do spur more buying of foreign goods, then doesn't that make for less demand for domestic goods, which in turn would make the production of domestic goods less profitable, and maybe run domestic manufacturers out of business? And then what will the foreign countries that Mr. Snow wants to purchase our goods have to buy? Maybe the article meant to say spurring more foreign spending on domestic goods.

I am sooooooo confused.

Anyway, I thought we were pretty well out of the manufacturing business except for war supplies. Oh. Maybe the plan is we keep threatening war and we manufacture war supplies for them to buy to defend themselves. Is that it?

No comments:

Post a Comment

Comments are moderated. There may be some delay before your comment is published. It all depends on how much time M has in the day. But please comment!