American trading experience with Japan shows there’s much more to trade balances than just the exchange rate, and beating up trading partners over exchange rates is useless. In 1985, the Japanese yen traded at 250 to the dollar, and Japan ran a $46 billion surplus with America. In spite of billions wasted by the Bank of Japan in costly and ineffectual currency market intervention between 1985 and 2005, the value of the yen more than doubled to 109 per dollar. During the same two decades, Japanese industry suffered barriers against its motorcycles, semiconductors, and steel in the U.S. market, accepted voluntary export restraints on cars, and localized production in America through its investments of over $100 billion.
Neither the huge currency appreciation, nor the restraints on trade, nor the transplanting of Japanese industry stateside prevented Japan’s trade surplus with the U.S. from rising to $75 billion by 2004. 
(Source: US Dept. of Commerce, DH Smith)
Consider America’s trade deficit with China – it certainly is growing, having quadrupled between 1996 and 2004. Note that this was a period during which the dollar/renminbi exchange rate was stable to within 1.1%. During the exact same period, the Mexican peso declined by about one-third against the dollar. If the exchange rate were the principal factor in relative competitiveness, we might expect Mexico’s export performance in the United States market to be better than China’s. In fact, Mexico did increase its surplus by a factor of three — a strong performance, but not as strong as China’s.
The dollar buying power or value is partly about psychology when it is backed by the "full faith and credit of the US government" rather than gold. This is the same as my definition of "Junk Bonds".
ReplyDeleteSince the US government stopped redeeming US dollars for gold, foreign governments and foreign individuals continue to use these freshly printed dollars (and other freshly printed US securities that they earned in exchange for their products that they exported to the USA) to purchase title to real estate, forests, industries, breweries, hotels, factories, casinos, financial institutions and everything else of value that is located in the USA. We paid these foreigners with our freshly printed dollars to manufacture or supply the things that we imported and consumed (rather than US citizens working to make these products ourselves in this country). Some government sources estimate that 25% of our property and businesses are now foreign owned (http://www.economyincrisis.org/content/ownership). What will be the buying power of the dollar when we have nothing left to redeem the dollars earned by foreigner manufacturers?????????
There is (probably) a limit to the amount of paper dollars that the foreign country manufacturing people and the foreign country raw material supplying people will continue to accept in payment. This limit will become apparent as soon as foreigners own title to everything of value in the USA and nothing is left that the foreign dollar holders want to buy with their freshly printed paper dollars. This is selling of our children's legacy to foreign owners, and the US government calls it "Investing in America".
The USA population will probably become employees (or maybe slaves) to the foreign countries and individuals that will own everything of value in the USA. The foreigners know that these US dollars will buy less and less each day that they do not spend them. They also know that these securities are not redeemable for anything except the "full faith and credit of the USA" (aka junk bonds). Our children and grandchildren might also have to change to the religion of the business owner if they want a job.
Future nationalization of foreign owned assets (ala Mexico) is another discussion topic for another day.
It is not the foreign manufacturer's fault that this condition exists. We created this condition ourselves. We purposefully destroyed most of our industries and fired all of the employees that were located in the US for various reasons. Why should we work and make the things that we consume as long we can get people in other countries to work to make these things for our consumption? We can pay them with freshly printed-paper currencies and other types of freshly printed-paper securities (Junk Bonds). They can redeem these freshly printed-paper currencies by exchanging them for title to our real estate, hotels, forests, breweries, casinos, factories, and our remaining businesses (instead of Gold). Our Stupid Legislators, Ignorant Government Employees, Self Serving Corporate Managers, Greedy Unions, Wall Street Financial Genius Criminals, Enron and Arthur Anderson type Master Criminals, NAFTA, EPA, WTO, and OSHA, just to name a few, have created this situation.
There's a lot there Gerald, and the last part is like a joke I have often have myself often told: The trade deficit is a wonderful thing, the foreigners give us nice BMWs, flat-screen TVs, and designer togs, and we give them worthless paper in return!
ReplyDeleteI wish things were really that funny, after all.
The current US government economic stimulation plan is make a lot of foreigners very happy.
ReplyDeleteThe US government is going to print up a bunch of new paper money, T-Bills, Bonds, and other similar paper securities and give these securities to contractors to pay US people to re-build and expand the US infrastructure (Pork Barrel Projects) in order to reduce unemployment. This money will probably be spent on illegal alien labor, imported earth-moving machinery, imported materials (Steel, equipment, Pipe & Wire), new imported private airplanes, outsourced engineering, outsourced CAD drafting, etc., and the US workers will still be mostly unemployed?
Foreign governments and foreign individuals will continue to use these freshly printed dollars to purchase title to real estate, forests, industries, breweries, hotels, factories, casinos, financial institutions and title to everything else of value that is located in the USA. This is sort-of like selling our body parts to keep from working!!!!! Any Economic Stimulus Spending also needs to prohibit any imported products (even if we no longer manufacture those products) from being purchased with these funds, and also prohibit all outsourcing of the Labor Required. This spending will cause massive inflation to the point that it takes a week's wages to buy one loaf of bread.
Like Zimbabwe, under Mugabe?
ReplyDelete