Economics 101!!!

http://query.nytimes.com/gst/fullpage.html?res=9B0DE4DA123FF93BA25751C0A961948260


LEAD: Treasury Secretary Baker demonstrates extraordinary skill as a diplomat and as a politician with his campaign to persuade Japan and West Germany to stimulate their economies. By threatening to let the dollar fall unless he gets his way, he undercuts protectionist pressures at home and simultaneously reminds the allies of their dependence on American markets.

Treasury Secretary Baker demonstrates extraordinary skill as a diplomat and as a politician with his campaign to persuade Japan and West Germany to stimulate their economies. By threatening to let the dollar fall unless he gets his way, he undercuts protectionist pressures at home and simultaneously reminds the allies of their dependence on American markets.

But he's not offering enough in return. He proposes to help stabilize the value of the dollar within a ''reference range'' of other currencies. A deal on exchange rates can't last, however, unless Washington matches Japanese and German reforms with a serious reform of its own. The United States must substantially reduce the Federal deficit.

Indeed, talk of reforming the machinery of exchange only distracts from a central, painful truth. To reap the benefits of an open world economy, all the participants must understand and accept some loss of individual economic sovereignty.

What explains America's $150 billion-plus trade deficit? How has the United States gone, with such stunning speed, from being the world's largest creditor to its largest debtor?

Many members of Congress find it easy to blame sneaky foreign trade practices. Sophisticated policy makers like Secretary Baker understand that in truth, foreign markets are now more open to American goods than ever before. They blame the failure of Japan and West Germany, the big trade-surplus nations, to create enough domestic demand to absorb the output of their immensely productive economies. What can't be sold in Osaka and Stuttgart, they say, ends up in Los Angeles and Chicago.

Policy makers in Europe and Japan believe the fault lies with America. Since 1981, they point out, America's budget deficits have sucked in several hundred billion dollars worth of foreign capital. All the yen and marks used to buy American securities have inevitably found their way home in the form of purchases of Japanese and German goods. Which side is right? There's no need to choose. The enormous imbalance in trade and capital flows could not exist without tacit cooperation from both lenders and borrowers. Germany and Japan have played to the interests of their powerful exporters by curbing domestic buying power. Americans have been able to enjoy sharp cuts in taxes without reducing Government expenditures.

When Secretary Baker places the burden of correction solely on the creditors, and then offers to seal the bargain with promises to defend the value of the dollar, he isn't likely to settle much.

Consider the possibilities. If America continues to rely on foreign capital to cover its budget deficits, the trade imbalance will remain. Suppose, though, that stimulation abroad does reduce the flow of foreign funds. The Federal Reserve will face an ugly choice. It could address the shrinking pool of capital by letting interest rates rise, risking recession. Or it could loosen the money supply to accommodate the demand for credit, risking inflation.

Just how this will affect private demand for specific currencies is anybody's guess. But with jobs, profits and domestic prices on the line, it's hard to imagine that the U.S. - or any government - would give priority to exchange rate stability.

The underlying point is that most of the old ideas of international finance are obsolete. Changes in interest rates, taxes and budget deficits ricochet around the globe, inducing large, often unforeseen consequences. And because of its dramatically increased involvement in world trade and capital flows, America is now almost as likely to be the victim of chauvinist economics as the victimizer.

The dollar's recent roller coaster ride is a symptom of the failure to face the reality of interdependence. Sooner or later, Washington and other governments will have to accept the need to coordinate what used to be called domestic economic policies. Until the orchestra plays in harmony, promises to fiddle with exchange rates will make no more difference than changing a discordant tune from a waltz to a foxtrot.


You're welcome Lily and Kevin!!

And how do you suppose the dollar is able to be declined?
They make more. The dollar should not be able to increase and decrease in value with so much ease. If it were attached to gold and silver, as the founding fathers set it up, the dollar would not decline as it has.

http://youtube.com/watch?v=z6NfXk7Bvc8

Watch it. The trade deficit is not the reason for the dollars decline. It is the poor even criminal, financial practices of previous Presidents and Congress. Most of us were robbed before we were born.

I have a feeling the trade deficit is the effect of a falling dollar. Not the other way around.

I have been told by people who are more financial sauve than I that this "concept" is actually a crock.

What Fanta posted is more accurate by their evaluation.

I am not up on this though so I cannot argue the point, just state what I have been told.

I don't believe it is a crock for a second. Nixon completed the separation of gold and the dollar. Wilson signed the papers that ended the government printing its own money. Now the Fed says how much can be printed, and they charge interest on it. It's a situation of perpetual debt.

If you buy more goods than you sell what happens Kevin?
Think about your own budget! If you make $50k a yr, but you spend $100k and then borrow the $50k to make ends meet, yr after, yr. How long will it be before you file for bankruptcy?

The corporate big wigs dont care. They have no allegiance to the American people or our economy. They profit either way. They just move their investment to a sector of the world where they still profit!
They are Global, and the legislation passed to lift trade tariffs ensure they will profit more whether the US economy fails or not.

This statement says nothing about the value of the dollar.

When the US was a manufacturing economy. The US dollar was worth 7 euros. Well Euros didn't exist so it was more 7 DM! As recently as the 80's the American dollar was worth 3 DM's!
Now we are nothing but a service economy. The American dollar is worth .95 Euros!

Why do you think that happened?
They killed the Unions, lifted the trade tarifs, and outsourced our manufacturing jobs!
Now we have a huge trade deficit.

Most all our money used for purchases goes to the country of that particular products origin. Even if that company is operating in SC or Tenn like Toyota, the profits go home!

The worker makes less than what they did before the trade tariffs were lifted and the big three couldn't compete.
Same thing happened to the iron and steel industries and the textiles, etc!

You know something is wrong when its cheaper to produce the same products in China and ship them half way around the world than they can be produced here.

The reasons are cheap slave labor, no safety regulations, and no environmental regulations. Also many of these companies do not have med and retirement pension worries. Their home country already covers their citizens so they dont have to worry about it! Not Education.

That is the reason for trade tariffs. To balance the playing field for not just American companies but for the American employee! Job security.

Good wages and a high living standard buoyed by a large middle class had turned America into the largest market in the world. That's why the world sought a piece of our market, but that wont last the way things are going.

The middle class is disappearing fast and the gap is steadily growing between the haves and the have-nots. Add to that the fact that our currency is becoming worthless. Americans spending power is reduced, and with it the market will soon disappear as well.

The Global economy!
To balance the worlds economy those currencies at the top (America) had to go down so those at the bottom (China, Mexico, etc) could rise. Supposedly one day, they will meet in the middle. We arent there yet!

You, me, our children, and grand children will be the biggest losers. All so some Deckhead who already has more than he can spend can make more!

They have sold us out and in the process brainwashed an entire generation of Americans to think it is something else, (Education, LMAO) and that the direction they are taking is the right direction for us!

The only one its right for are the board members and CEO of the major corporations and stock holders!

It dont?
Only because you cant just sell off treasury bonds to borrow the money. What backs the treasury bond is Gold and Guarantees. As the debt grows we have less gold. To buy he treasury bond back and pay the interest on the loan, is when they print more money.
Its all tied to the trade deficit!

But what do I know!

Treasury bonds and the trade deficit should have, and I don't believe do, anything to do with the value of the dollar.

The amount a product costs should be the first decision a consumer has to make before they purchase a good or service. Consumers may find themselves asking what exactly makes a price rise and why their money can purchase less and less.

The answer to this question is inflation. What is inflation and why should any consumer care about inflation? A general overview of the inflation phenomenon, the main measures of inflation, and how inflation plays a role in the economy will all help a person better understand why their money seems to be worth less each year.

http://www.coinnews.net/tools/cpi-inflation-calculator/

It has nothing to do with a trade deficit. A devalued dollar increases a trade deficit. I'm starting to question if you know anything, Fanta.

I guess all the economic genuises in the country are wrong then!!

I rest this idea of counter brain washing. Im tired and have a 4 hr final tomorrow morning.
Good night dude!!

Go to the site. Read it all. There are graphs if that makes it easy enough for you.

Tomorrow evening!

Peace out Kevin!!

Later.

What does your site have to do with the value of the dollar?

I think you are confused my friend!!

I did look, but inflation isnt what drives the value of the dollar.
Even on your link it doesn't say inflation does. It doesn't even mention the value of the dollar, and shows a steady increase from 1989 until 2008!

Once again I ask, How is that link relative to the value of the dollar!
Imagine if you can, that we weren't trading our jobs and the dollars value away. Products would cost a little more but you'd have good jobs with better pay and better benefits. I'm not saying inflation would be lower, but it would be no more and Americans would have better jobs with health insurance and a better outlook toward a comfortable retirement one day!
Wait a few years and maybe you will understand!

Inflation has nothing to do with the value of the dollar!
Find me another link contradicting the article I posted as the OP.

humm wondering what that said

Here is an excellent article that may help you understand what Ive been trying to tell you!
Maybe you can understand it better, or at least belive what he says more readily!

FORTUNE editor at large Carol Loomis, who is a Berkshire Hathaway shareholder, worked with Warren Buffett on this article.

http://www.pbs.org/wsw/news/fortunearticle_20031026_03.html

Before you attempt to insult my intelligence again at least grant me the same respect as I have you by reading the article.
When you do we will talk some more!

Peace!