Dollar continues sinking but trade deficit keeps widing?

[thesilentone]

Ok, I understand that now, but other than it being an accepted definition what is the difference between the trade deficit and the OTHER money that the US bleeds each month? Does it harm it in different ways or is it just a different measurement?

[DrSpike]

Originally posted by thesilentone
I've not studied economics for over 8 years now so i'm a bit rusty but surely as the value of the dollar decreases the real value of your debts is going to increase?

It's true to the extent the country has debts denominated in the currency they are depreciating/devaluing against. In practice this is usually only a significant issue for developing countries - for instance sustaining the currency crises in Asia in the late 90s.

[thesilentone]

Originally posted by DrSpike


It's true to the extent the country has debts denominated in the currency they are depreciating/devaluing against. In practice this is usually only a significant issue for developing countries - for instance sustaining the currency crises in Asia in the late 90s.

Ok i'm well aware of the threat of me sounding like a complete newbie here but there's no harm asking obvious questions.

Would you say thats more due to the flexibility of the internal market leaders being able to adjust/fudge numbers at whatever unknown cost to internal parties, or is it an actual robustness that makes such external factors a non-factor? IE in the example of developing countries being particularly affected, is it just because they tend to export raw materials where the prices are set OUTSIDE their borders, whereas for the US the market is likely mostly internal and any adjustment can be hidden?


EDIT: in fact completely ignore what i was saying, it's true what they say, posting after a few drinks is a baaad idea. Mixing trade deficits and currency values with raw export values is an even worse idea. Maybe someone will have fun pointing out the error of my ways though

[OneFootInTheGrave]

US is at an interesting stage, coming from strong past which encouraged fiscally irresponsible consumers, irresponsible government, and a very open way to do business (typically a strength) to the point where the irresponsibility is starting to catch up with the system (sub primes and related start of the credit crunch), with unskilled, but this time also skilled labour available a lot cheaper & at similar quality levels elsewhere... capital will continue to flow out at record rates...

in any case Dollar already fell a lot, and it seems to have a while to go in order to reverse those trends. Add the commie China into the pot, which does not play by the rules invented in Washington, and we could be seeing a start of something unique, not necessarily pleasant...

[snoopy369]

Originally posted by thesilentone
Ok, I understand that now, but other than it being an accepted definition what is the difference between the trade deficit and the OTHER money that the US bleeds each month? Does it harm it in different ways or is it just a different measurement?

It harms different things. The government losing money is not the same as the economy net losing money; while in some sense they are both coming from the same place (our pocketbooks), it is generally not as bad for the government to lose money as the economy, at least assuming you consider trade deficit = poor economy, which may or may not be the case.

[DanS]

Originally posted by OneFootInTheGrave
in any case Dollar already fell a lot, and it seems to have a while to go in order to reverse those trends. Add the commie China into the pot, which does not play by the rules invented in Washington, and we could be seeing a start of something unique, not necessarily pleasant...

Last year, China's trade surplus was about 8% of its economy. Large trade surpluses have associated problems too, so I suspect that China will want to moderate the surpluses. A good way to do that is to allow its currency to appreciate versus the Dollar outside of the enforced 7% per annum limit. (By the way, you seem to have the opinion that having a controlled currency account is something of a strength for China. I think that mostly it introduces lots of weaknesses instead.)

It seems unlikely that the Dollar will continue to fall relative to the Euro. But as DrSpike said, the investment flows will also have their say about the value of the Dollar.

In any event, I don't feel nostalgic about the low-value manufacturing work that we're shipping abroad. It might take a great deal of time to replace it with higher value work, but over time we'll be better off for it. This is by no means a race to the bottom.

[DaShi]

At least my Chinese money is slowly becoming worth more. Now to just get it all out of the bird's cage.

[OneFootInTheGrave]

Originally posted by DanS


Last year, China's trade surplus was about 8% of its economy. Large trade surpluses have associated problems too, so I suspect that China will want to moderate the surpluses. A good way to do that is to allow its currency to appreciate versus the Dollar outside of the enforced 7% per annum limit. (By the way, you seem to have the opinion that having a controlled currency account is something of a strength for China. I think that mostly it introduces lots of weaknesses instead.)

It seems unlikely that the Dollar will continue to fall relative to the Euro. But as DrSpike said, the investment flows will also have their say about the value of the Dollar.

In any event, I don't feel nostalgic about the low-value manufacturing work that we're shipping abroad. It might take a great deal of time to replace it with higher value work, but over time we'll be better off for it. This is by no means a race to the bottom.

For China, I only think that they are more unstable, given their nature, and thus if some other goals are perused can much easier than US/Europe screw up the word economy that now also depends on them... nature of the problem is political, naturally , but they could cause more grief to US people comparing to if all the strings would be held in Washington as was the case in the past, now you depend on an "not necessarily economically driven" outside factor also... in the past Germany/Japan were influencing dollar also, but they are just the case of more of the same, while I am sure you will agree that the nature of the Chinese regime is still markedly different.

On Dollar vs Euro, is this the bottom? Dollar already lost 50% or more from the peak + there are many factors influencing the relative value, but I think that the response to the upcoming recession will determine the future balance... noone thought that Dollar will sink past 1.3 vs the Euro but it's hitting around 1.5 ratio now... IMO it has a while to go given the state of US economy and the potential to enter into a recession period....

On the jobs - it is not only low value manufacturing that is shipping abroad, it is low value administration which is going, and will be gone in due time, but also high value services which are not tied to a specific location, and that is a lot of the jobs in our economy... only the very high value - which is either too hard or impossible to transfer will stay, because people have to be physically present to earn the $$$, such as labs (not worth transferring), legal teams, sales, and top level management + local engineering will stay...

what will go is all the function overheads, 100% of admin work, 100% or remote support, as they can do it as well as we do just for less... what is typically thought of as "high value" will shift too, for example software engineering, and that shift has not even started really... not to mention when mid/small size business starts getting supported from there on a large scale... I think we can agree that Indian/Chinese universities can churn out the same quality engineers/support people as we do here, but they will also work for 1/10th of the salary of less as their "low value" admin counterparts do... that shift is only starting, and that will be the true "job" hit... off course the corporations will still be ours, and will make as much money as ever, but I do not think we can live as easy from only shareholder profit spent in the country & reinvested governmental taxation...

Good part for EU is that it has expanded in the low cost areas in eastern Europe so a lot of the shift will be happening within the Eurozone, which will ease the transition, but for US again such a reshuffle is not an option...