Sunday, January 09, 2005
The Fable of the "Fearsome Deficits"
The Fable of the "Fearsome Deficits": The Fable of the "Fearful Deficits"
As I first read this article I was fist stunned. I had the feeling what he said is right and after carful reconsideration I still belive that thers a lot of truth in this article.
If you think about it you'll recognize that depreciation of the dollar was mostly due to "talking down" of the dollar. The depreciation was mostly a result of the statement of Greenspan. Currently you can observe that now the dollar is deprediated so much, that it could endager the world economy its beeing talked up again. And see it works.
I think that the reason for this is that the depreciation of the dollar hits mainly the european economy. China and Japan can easily get along with the depreciation of the Dollar because they have an growth rate of their economy of 8%+. Don't forget China is a communistic regime. They treat their workers like slaves more or less and they have 1,300,000,000 of them. Neither US nor European labour will ever be compatible to this. So China has the potential to destroy western economy. The Euro is just to strong compared to the dollar and the USA still needs the economy of europe because otherwise the would be dependent on asia alone. That the euro is so expensive is basically a result of that the euro is the only major currency which is not pegged to the dollar and the ECB has a stable currenc policy which independent of the government. So what would you do if you fear the dollar is depreciated? Probably selling dollars and by euros. Anyway the depreciation of the dollar is more a political thing and its not so much founded on the current account deficit. The current account deficit is more a thing to make the public fear to make them comply to the changes the administration wants to do. Current account deficit will not cause the dollars depreciation because the dollar is the worlds resereve currency.
Next intersting point is this fear fear fear thing. It reminded me of Michal Moore. He also thinks that the government trys to talk the american people into fears which do not exist just to make them more compliant to the government decisions.
Last point I want to comment on is the current account deficit itself. The current account account deficit is actually nothing bad itself. The question is what causes this current account deficit. It can be caused by a trade deficit, a budged deficit and so on. What it comes down to is that more money is invested in USA than USA invests in the rest of the world. It doesn't really say why. I can't see something bad in the current account deficit for the US per se. The USA has had a current account deficit sice more than 30 Years and nothing happened. The problem today might be that the current account deficit is mainly caused by the budged deficit of the government, and not so much by the trade deficit.
Anyway the current account deficit becomes only a problem if the world is not willing to finance it anymore. And this will happen if the dollar is not the worlds reserve currency any more. And weather the dollar will stay to be the worlds reserve currency or not is dependent upon a stable dollar no more no less.
The only drawback in expect from the current account deficit of the US is that it makes the USA dependent upon the economy of other countries wich actually means that the USA will not be indipendent any more since USA has expanded their economic area to the world.
As I first read this article I was fist stunned. I had the feeling what he said is right and after carful reconsideration I still belive that thers a lot of truth in this article.
If you think about it you'll recognize that depreciation of the dollar was mostly due to "talking down" of the dollar. The depreciation was mostly a result of the statement of Greenspan. Currently you can observe that now the dollar is deprediated so much, that it could endager the world economy its beeing talked up again. And see it works.
I think that the reason for this is that the depreciation of the dollar hits mainly the european economy. China and Japan can easily get along with the depreciation of the Dollar because they have an growth rate of their economy of 8%+. Don't forget China is a communistic regime. They treat their workers like slaves more or less and they have 1,300,000,000 of them. Neither US nor European labour will ever be compatible to this. So China has the potential to destroy western economy. The Euro is just to strong compared to the dollar and the USA still needs the economy of europe because otherwise the would be dependent on asia alone. That the euro is so expensive is basically a result of that the euro is the only major currency which is not pegged to the dollar and the ECB has a stable currenc policy which independent of the government. So what would you do if you fear the dollar is depreciated? Probably selling dollars and by euros. Anyway the depreciation of the dollar is more a political thing and its not so much founded on the current account deficit. The current account deficit is more a thing to make the public fear to make them comply to the changes the administration wants to do. Current account deficit will not cause the dollars depreciation because the dollar is the worlds resereve currency.
Next intersting point is this fear fear fear thing. It reminded me of Michal Moore. He also thinks that the government trys to talk the american people into fears which do not exist just to make them more compliant to the government decisions.
Last point I want to comment on is the current account deficit itself. The current account account deficit is actually nothing bad itself. The question is what causes this current account deficit. It can be caused by a trade deficit, a budged deficit and so on. What it comes down to is that more money is invested in USA than USA invests in the rest of the world. It doesn't really say why. I can't see something bad in the current account deficit for the US per se. The USA has had a current account deficit sice more than 30 Years and nothing happened. The problem today might be that the current account deficit is mainly caused by the budged deficit of the government, and not so much by the trade deficit.
Anyway the current account deficit becomes only a problem if the world is not willing to finance it anymore. And this will happen if the dollar is not the worlds reserve currency any more. And weather the dollar will stay to be the worlds reserve currency or not is dependent upon a stable dollar no more no less.
The only drawback in expect from the current account deficit of the US is that it makes the USA dependent upon the economy of other countries wich actually means that the USA will not be indipendent any more since USA has expanded their economic area to the world.
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