Posted on 01/04/2003 4:25:25 AM PST by Fzob
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As the late Herbert Stein, former chairman of the US council of economic advisers, once said: "If something cannot go on forever, it will stop." The combination of an ever-rising US current account deficit with a strong dollar must cease. Indeed, it already is doing so. The currency weakened in 2002. It is rather likely to weaken further in 2003.
The present course of the US economy is unsustainable. Net US liabilities to the rest of the world are some 25 per cent of gross domestic product - in the neighbourhood of $2,500bn (£1,562bn). In the first three quarters of 2002, the current account deficit ran at close to five per cent of GDP. As recently as 1997, however, the deficit was only 1.5 per cent of GDP. It is bigger this year than two years ago, despite last year's economic slowdown. Since the beginning of 1997, trend growth of exports of goods and services, at constant prices, has been 2.2 per cent a year, of GDP 3 per cent and of imports 7.4 per cent. Even under quite conservative assumptions, the current account deficit could, on current trends, be over 7 per cent of GDP by 2007. By that year, US net external liabilities would, at current exchange rates, be close to 65 per cent of GDP. If the dollar is to remain strong, despite these deficits, the rest of the world must accumulate net claims on the US economy at $500bn a year, and rising, for the indefinite future. This is hard to imagine. Already, there has been a steep decline in net private foreign purchases of US assets, from $978bn in 2000 to an annual rate of just $560bn in the first three quarters of 2002. Net foreign direct investment has collapsed, from $308bn in 2000 to an annualised $14bn in 2002. This decline in private foreign purchases of US assets has been offset by a big increase in foreign government net purchases of US assets, from $38bn in 2000 to an annualised rate of $136bn in 2002. There has also been a steep fall in US private purchases of foreign assets, from $605bn in 2000 to an annual rate of just $380bn in 2002. If foreign governments stopped propping up the dollar and US investors invested abroad, as before, the dollar would tumble. Other currencies must rise if the dollar is to fall. But the two biggest economies after the US - the eurozone and Japan - are highly dependent on export demand, at least for the moment, while no big economy offers obviously superior returns to those available in the US. Moreover, other governments, particularly in Asia, are desperately unwilling to see their currencies rise against the dollar. The most potent of all large-scale purchaser of dollars is Japan. Its vast foreign reserves, already $395bn at the end of 2001, rose to $461bn by October 2002. With the finance minister talking of a yen exchange rate below Y150 to the dollar and pressure on the Bank of Japan to expand the money supply, further purchases are probable. If the dollar is to fall, the important currency against which this is likely to happen is the euro, since it belongs to the one large entity whose authorities will refuse to buy dollar assets in large quantities. The dollar has already fallen 16 per cent against the euro since the end of January 2002. This slide could easily continue in 2003. This is a tale of irresistible force meeting immovable objects. The force is the growing pile of US liabilities. The objects are the low real returns in other big economies and the unwillingness of many governments to tolerate currency appreciation. In the short term, the objects may win. In the long run, the force will be stronger. The dollar must fall. The longer it remains high, the bigger its fall will be |
In all fairness to Bush, we WERE attacked, weren't we?
(Or is America going to just bend over every time a 9/11 occurs?)
Congratulations! You have discovered that money is NOT the source of happiness. Many, many souls have gone to their grave thinking it was.
If you can manage to NOT have either a car payment or a house payment (both is of course much better), you can increase your living standard by at least 20%.
The vast majority of Americans have both a car payment (or two) and a house payment.
So who is getting rich? (Or should I say, who WAS getting rich?)
It is (was) the bankers, developers, speculators, and big-ticket vendors (cars).
The saying on the street is that if the "bottom falls out," everyone will be on the same floor. The average American household is in debt in the tens of thousands of dollars.
Yet, the entire world still is beating down the doors, jumping fences and swimming rivers in a mad frenzy to enjoy the priveledges of living in America.
What is an elitist black man who only cares about himself and his rich friends?
How about an elitist black man who only cares about himself, his rich friends, and golf?
What about an elitist, white man who only cares about himself and not a fig for his friends?
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Nice word there: only. I suppose you have detected by extremely fine judgement that Bush cares nothing about the United States or his oath of office, but only about himself and his rich friends.
Would you prefer an elitist, white man who only cares about himself, his rich friends, and hates America (think Al Gore if you are having trouble forming an image).
Would it be OK if it were an elitist, white woman who only cares about herself and her rich friends (say, for instance, Hillary Clinton, spawn of Satan)?
--Boris
Absolutely not--at least no one who has to do the weekly shopping. Even my paper towells have more than doubled in price in the last two years. Bread hasn't quite doubled yet, but it won't be long. The only reason we still live as well as we do is that I try not to buy things that aren't on sale. When something I use is on sale, I try to buy enough to last until the next sale.
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