While the article in question is largely political bullshit, Samuel Mc
Kee's response included the denial of the possibility of a trade deficit,
something which is little better.
The USA has a large trade deficit meaning the value of its imports is much
less than the value of its exports. This means that foreigners are sending
American goods for something other than goods, namely American assets or the
hire of American owned assets abroad.
Capital is mobile and goes where it it expects that the relationship between
the current capital stock and the expected future productivity growth and
labour force growth will result in the highest sum of yield and capital
gain. The flows of inward capital increase the demand for the economy's
currency and push its exchange rate up.
A trade deficit should be viewed like net immigration -- a sign that the
country treats people well and has good prospects. New Zealand's exchange
rate has fallen from 70 US cents in 1997 to about 40 US cents now, and its
net immigration from strongly positive to strongly negative because in that
time the outlook for the economy's future has turned around. In the last
year the huge current account deficit has finally shrunk but this is at the
cost of domestic economic stagnation (growth in the last 5 quarters has
averaged less than 2% p.a.). All this is as a result of New Zealand going
from being a bright spot on the radar screens of foreign investors and
potential immigrants to being a place people are so worried about even its
own inhabatants are leaving in droves (I did) and those who stay have
decided that they should invest in Australia and America instead.
David Hillary
----- Original Message -----
From: Samuel Mc Kee <[EMAIL PROTECTED]>
To: e-gold Discussion <[EMAIL PROTECTED]>
Cc: Celise Mc Kee <[EMAIL PROTECTED]>
Sent: Monday, July 09, 2001 5:26 AM
Subject: [e-gold-list] Need to "do something" about the value of the dollar
> http://www.townhall.com/columnists/brucebartlett/bb20010707.shtml
>
> I think it was Johnathan Swift who said that a lot of really awful
policies
> stem from the belief the we need to "do something."
>
> How about returning to the gold standard and letting monetary policy sort
> itself out with market efficiency, rather than relying on some philosopher
> king's presumption of godlike knowledge of all the transactions taking
place
> in the global economy?
>
> The article also conjures up the bogeyman of the "trade deficit," which is
> an accounting gimmick used to scare the economically illiterate, since the
> existence of a trade deficit using honest accounting is mathematically
> impossible.
>
> A little common sense dispells the spectre of a trade deficit. Just
picture
> what must be happening at the currency exchanges if there's a huge trade
> deficit: Importers come in with stacks of dollars they want to exchange
for
> foreign currency so that they can buy foreign goods. But nobody wants to
buy
> U.S. goods, so there are no foreign importers coming in with currency they
> want to use to buy U.S. dollars.
>
> So there's this gigantic and ever-growing pile of U.S. dollars (in the
> multitrillions, if we are to believe the protectionists) that no one wants
> to buy, and the money-changers are selling U.S. importers foreign currency
> that they get...how? No one is giving them foreign currency for their
> dollars because no one needs dollars to buy American goods. So the foreign
> currency that U.S. importers are buying with their dollars must be
> materializing from nowhere, by magic.
>
> That's the model of reality on which is based the notion of a "trade
> deficit."
>
>
>
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