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The 2-3% of GDP current account deficit, while troubling, is not particularly alarming. It'll continue putting downward pressure on the value of the dollar, which is a good thing. In particular with oil, that means we'll get even more dollars flowing into the country than going out, since we're a net exporter of petroleum products. Moreover, it holds for everything make US exports more attractive and foreign imports less attractive. A weaker dollar means less current consumption, but is healthy in the long run.
Nybbler those high tech cars are a fantasy - they are not going to solve America's oil addiction, and transport problems. They are as ridiculous as the Segway is.
OK. If you don't like the 1992 GM Ultralite (88mpg), how about the all-electric Nissan Leaf and Tesla S? I'm not a great fan of electric cars, but there's no doubt that they exist and they work. If gasoline and natural gas and alcohol and all other portable fuels which can be used to run an internal combustion engine become too expensive, there's still those. Building a decent charging infrastructure for them (including additional generation (probably coal), transmission and distribution capacity) will be expensive, as would replacement of the current ICE-based fleet with electrics, but still much easier and cheaper than somehow rebuilding the country on a model which eschews personal transport.
Why is "demand high"?
Because the Fed is printing the money, and buying the bonds.
That's sustainable, isn't it? Isn't it? Dah!
The only real concern with that is inflation, which at 0.0% doesn't seem an immediate concern. The Fed's bond buying is pouring a few cups into the bath tub full of money that had its drain pulled by real estate collapse. The problem is inflation lags stimulus. I wouldn't be in bonds right now myself.
So why hasn't this happened? A number of reasons. That many oil exporting countries accept US dollars is certainly a large part of it, but recently there's been a bigger reason, and that is monetary policy... Chinese economic policy. This completely explains the curve since 1993 or so. By artificially keeping the yuan low with respect to the dollar, China keeps Chinese exports cheap, and hence the dollars flowing in. China could of course stop doing this, but it would hurt China a lot more than it would hurt the US. The US would see a bad bout of consumer inflation, but it would also find domestic manufacturing becoming more profitable. China, on the other hand, would see its manufacturing economy -- almost entirely built on the cheap yuan -- collapse.
While this has been the case in the past it is no longer so. Because the $ is inflating the yuan is also inflating. A developing country like China cannot handle high inflation rates like the US can. The result is that the Yuan has been appreciating relative to the $. Just look at a CNY/USD chart. The yuan has gone from $.12 in 2005 to $.16 today.
Right. Push the questions away - because they do not "belong" here... Don't bother us with this reality.
Hey, guess what, the Way that we transport ourselves will have a huge impact on where and how we life. It is a truly vital part of Urban Planning, and maybe TRANSPORT the most crucial single item to get right.
Quote:
Originally Posted by nybbler
...you're missing an essential point about the trade deficit and currency exchange rates, which is that there's a feedback loop. If the US has a negative balance of trade, then dollars accumulate in foreign hands. That should push the value of the dollar vis-a-vis foreign currency down...
The dollars ARE accumulating in foreign hands - that's obvious when you look at the Balance of Payments chart that I have posted twice.
But the dollar has been relative stable over the past several years - We should be talking about WHY that is the case, not saying in should not be strong.
Quote:
Originally Posted by nybbler
...That means that foreign goods will end up costing Americans more, and conversely American goods end up costing foreigners less. This would result, by simple Econ 101, in greater purchases of American goods by foreigners and tend to push the balance of trade back towards neutral.
US goods are not competitive. We still have a massive Negative balance of payments. So ask WHAT is balancing that? (I have already given the answer in my original post above, did you miss it?)
Quote:
Originally Posted by nybbler
So why hasn't this happened? A number of reasons. That many oil exporting countries accept US dollars is certainly a large part of it, but recently there's been a bigger reason, and that is monetary policy... Chinese economic policy. This completely explains the curve since 1993 or so. By artificially keeping the yuan low with respect to the dollar, China keeps Chinese exports cheap, and hence the dollars flowing in. China could of course stop doing this, but it would hurt China a lot more than it would hurt the US. The US would see a bad bout of consumer inflation, but it would also find domestic manufacturing becoming more profitable. China, on the other hand, would see its manufacturing economy -- almost entirely built on the cheap yuan -- collapse.
Okay, well at least you have given a reason why you think the Dollar has stayed strong.
And you are at least PARTLY right IMHO. The Chinese were taking in dollars in foreign trade, and then reinvesting them in US Treasuries, to keep their currency from getting too strong. But as I have posted somewhere above (I think) that is really not happening any more - Chinese holdings of Treasuries are not rising anymore, despite all the dollars the Chinese get from trade. Here are some charts showing that - I wish I could find one that is more up-to-date:
China used to be the largest holder of US debt
... But not any more
.. So what is happening to all those Dollars that are flooding into China?
That's a good point for more discussion - coming
.. And what can China do INSTEAD of "vendor financing" the goods it exports to the US
Another good point for discussion here... - coming
The 2-3% of GDP current account deficit, while troubling, is not particularly alarming. It'll continue putting downward pressure on the value of the dollar, which is a good thing. In particular with oil, that means we'll get even more dollars flowing into the country than going out, since we're a net exporter of petroleum products. Moreover, it holds for everything make US exports more attractive and foreign imports less attractive. A weaker dollar means less current consumption, but is healthy in the long run.
I think you need to focus on The Two Biggest CASH DRAINS (the subject of this thread), sucking wealth OUT of the US economy:
+ US Oil Imports - now about 7-8 million bpd
Let's multiply 7.5mn x $90 oil = $675 Million per annum x 365 = $246 Billion, call it $250 bn.
+ US Military spending, in foreign countries
I don't have the exact figure, but with foreign wars still underway, I reckon it is bigger than oil spending
Can you help my find a figure for military spending?
Okay, well at least you have given a reason why you think the Dollar has stayed strong.
And you are at least PARTLY right IMHO. The Chinese were taking in dollars in foreign trade, and then reinvesting them in US Treasuries, to keep their currency from getting too strong. But as I have posted somewhere above (I think) that is really not happening any more
And, if you look at your own chart, you see that the US balance of payments is moving towards neutral. Economics: it works. (sometimes)
OK. If you don't like the 1992 GM Ultralite (88mpg), how about the all-electric Nissan Leaf and Tesla S? I'm not a great fan of electric cars, but there's no doubt that they exist and they work. If gasoline and natural gas and alcohol and all other portable fuels which can be used to run an internal combustion engine become too expensive, there's still those. Building a decent charging infrastructure for them (including additional generation (probably coal), transmission and distribution capacity) will be expensive, as would replacement of the current ICE-based fleet with electrics, but still much easier and cheaper than somehow rebuilding the country on a model which eschews personal transport.
Look, even if there are some GREAT electric cars, there are three big problems:
+ They are very expensive
+ The infrastructure for recharging them is very limited (important, given their range)
+ All electric cars do is to SHIFT the energy burden for oil to something else (coal? nuclear?),
they do not eliminate the energy requirement
Moving people closer together, and giving them more energy efficient means of transport CAN reduce the overall energy requirement. So that's where I look for a solution, in finding a new way of living: carfree, and with less energy needs.
I think you need to focus on The Two Biggest CASH DRAINS (the subject of this thread), sucking wealth OUT of the US economy:
+ US Oil Imports - now about 7-8 million bpd
Let's multiply 7.5mn x $90 oil = $675 Million per annum x 365 = $246 Billion, call it $250 bn.
But the US does produce about 6 million bpd of oil, and this has been increasing in recent years.
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