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Thread: Dollar is doing something it hasnt done in three decades

  1. #21
    Radical Centrist BigLeRoy's Avatar
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    Quote Originally Posted by publius3 View Post
    Not so. A trade deficit does not imply that we consume more than we produce although the unfortunate conventional description of trade deficits as resulting from shortfalls of domestic savings over domestic investment fuels this fallacy. What a trade deficit does indicate is that intl investors find the America to be an relatively attractive place to invest. With a net inflow of global capital, our capital stock grows. In turn, production here rises accordingly.
    I'm sorry. But this is just plain wrong. This is not even economic 'theory'. It is a national income accounting IDENTITY.

    The current account is DEFINED as the difference between national saving and the desired level of investment: CA = S - I. That should be a triple equal sign, to indicate its status as an identity, not an equation. A nation has a current account surplus if its level of national saving exceeds its desired level of investment; in that case, it can loan its excess savings to foreign nations that have a current account deficit. A current account deficit----and America has a WHOPPING current account deficit-----simply means that our national level of saving is wholly inadequate to fund our desired level of investment, forcing us to borrow from abroad.

    Here, Greg Ip explained this very well in the WSJ just a few weeks ago. Why don't you take up the matter with him?

    Tax Cut To Widen Trade Gap That Riles Trump
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  2. #22
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    Quote Originally Posted by BigLeRoy View Post
    I'm sorry. But this is just plain wrong. This is not even economic 'theory'. It is a national income accounting IDENTITY.

    The current account is DEFINED as the difference between national saving and the desired level of investment: CA = S - I. That should be a triple equal sign, to indicate its status as an identity, not an equation. A nation has a current account surplus if its level of national saving exceeds its desired level of investment; in that case, it can loan its excess savings to foreign nations that have a current account deficit. A current account deficit----and America has a WHOPPING current account deficit-----simply means that our national level of saving is wholly inadequate to fund our desired level of investment, forcing us to borrow from abroad.

    Here, Greg Ip explained this very well in the WSJ just a few weeks ago. Why don't you take up the matter with him?

    Tax Cut To Widen Trade Gap That Riles Trump
    An example will expose the fallacy of Ip’s claim. When Toyota built its auto factory in KY in the U.S. the trade deficit rose because the Japanese did not spend the dollars previously earned on Japanese exports to America on merchandise, instead they invested in the factory. But this investment was neither evidence of, nor a cause of, the US producing less than it consumes. This Japanese investment caused more cars to be produced HERE actually.

  3. #23
    Radical Centrist BigLeRoy's Avatar
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    Quote Originally Posted by publius3 View Post
    An example will expose the fallacy of Ip’s claim. When Toyota built its auto factory in KY in the U.S. the trade deficit rose because the Japanese did not spend the dollars previously earned on Japanese exports to America on merchandise, instead they invested in the factory. But this investment was neither evidence of, nor a cause of, the US producing less than it consumes. This Japanese investment caused more cars to be produced HERE actually.
    SMH. Again, just plain wrong. When Toyota built that factory in Kentucky, it would have tended to make the trade deficit FALL, because Americans would have been buying Toyota cars made in AMERICA, rather than in Japan. Duh!
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    Quote Originally Posted by BigLeRoy View Post
    SMH. Again, just plain wrong. When Toyota built that factory in Kentucky, it would have tended to make the trade deficit FALL, because Americans would have been buying Toyota cars made in AMERICA, rather than in Japan. Duh!
    That's step 2 of the analysis, that's my line actually, but initially fact Americans bought Toyotas and Japanese didn't buy Chevies said nothing that Americans were consuming more than they produced.

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    New Member BigBob's Avatar
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    Why Americans aren't buying real vehicles and instead buying junk toys is a real question.

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    what is a real vehicle ? An Audi ?

  7. #27
    Radical Centrist BigLeRoy's Avatar
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    Quote Originally Posted by publius3 View Post
    That's step 2 of the analysis, that's my line actually, but initially fact Americans bought Toyotas and Japanese didn't buy Chevies said nothing that Americans were consuming more than they produced.
    If you could rephrase that in a way that would make your fifth-grade English teacher feel less ashamed, perhaps I might be able to address it. As it stands, it is incomprehensible.
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    Quote Originally Posted by BigLeRoy View Post
    If you could rephrase that in a way that would make your fifth-grade English teacher feel less ashamed, perhaps I might be able to address it. As it stands, it is incomprehensible.
    Foreigners investing their dollars can't turn around and spend them on other things. It is you who cannot understand the correcr inferences to be drawn from this.

  9. #29
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    Quote Originally Posted by galatin View Post
    When I was an exchange student in the US I needed Swiss franc 4.30 to buy one US dollar. It was 50 years ago. And now it is one to one. It is the US dollar which lost more than any other Western European currency toward the Swiss franc. Did it do something good to American exports to have such a big drop as far as exports are concerned ? The US proportionally export much less than other developped Western European countries, which currencies did not loose as much value over the last 50 years. So where is the cause and why the US are exporting so little still proportionally ? Is it structural ? Has it to do with something special in American culture etc....? Why others who did not benefit of what are competitive devaluations are still able to export ?
    I think there are multiple factors at work, and the other ones can sometimes override the value of the dollar. For example, through most of the Bush years, the dollar eroded pretty dramatically, especially against the Euro. Yet there wasn't a big improvement in our balance of trade, as one might have expected from our goods and services getting more cost competitive. I think part of it was due to the stigma American-branded offerings had acquired, particularly in other wealthy nations. The US's approval ratings in leading consumer economies like France and Germany had gone into free-fall on Bush's watch. And that kind of stigma means American-branded products need to be a lot better or a lot cheaper than foreign competitors to attract a buyer. I think we're seeing something similar on Trump's watch. The value of the dollar is down about 6% relative to foreign currencies since he took office, but that's unlikely to result in a big improvement in the balance of trade, because the consumers in other wealthy nations are currently repulsed by America, to an extent that hasn't been true since back in the days of Abu Ghraib. If you're, say, Dutch, your subconscious associations with Ford, or McDonalds, or any other product that's associated with the US isn't going to be great.

  10. #30
    Radical Centrist BigLeRoy's Avatar
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    Quote Originally Posted by publius3 View Post
    Foreigners investing their dollars can't turn around and spend them on other things. It is you who cannot understand the correcr inferences to be drawn from this.
    Well of course they can! Why on Earth wouldn't they be able to?!? Foreigners would have MANY different possible uses for their dollars that they had earned from exporting goods to America. Really, I am simply not fathoming the point you are trying to make here.

    It should be obvious that when Toyota started building automobile plants in Kentucky in the 1980's, that led to Americans buying Toyotas made in America, rather than Toyotas made in Japan, and that this would clearly have the effect of LOWERING the trade deficit, not increasing it. That the trade deficit was nevertheless rising sharply in the 1980's was due to OTHER reasons, most notably the contemporaneous HUGE increase in our budget deficits.

    The budget deficit and the trade deficit are macro-economically LINKED!

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