Account Deficit's Reality
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     holycow
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Username: holycow
Post Number: 385
Registered: 08-2004Rating: N/A
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| | Thursday, November 18, 2004 - 05:20 pm: |  
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Account Deficit's Reality
On the other hand, such a reduction in the capital inflow that finances the yawning U.S. current account deficit would go hand in hand with a reduction in the trade deficit -- and once again mean a drop in demand for European exports.
This is the awful reality about the U.S. current account deficit for the rest of the world: Reducing it means that U.S. exports eventually will have to increase much more rapidly than imports. In other words, other countries collectively will have to absorb more U.S. goods and services while exporting relatively less to this country.
The numbers are striking. Through September of this year, the U.S. had imported goods and services worth $1.034 trillion while exports totaled only $730 billion. That means that just to stabilize the deficit, exports would have to increase more than 40 percent faster than imports.
The Numbers
In the first nine months of this year, Western Europe exported $83 billion more in goods and services than it imported from the U.S. That U.S. deficit was $10 billion higher than in the comparable period of 2003 even though the value of the euro was almost 10 percent higher in the same period this year.
According to the Fed's broad trade-weighted dollar index, the currency's value, adjusted for inflation, peaked in February 2002 when the euro was worth just under 87 cents. Last month the euro averaged close to $1.28, about a 32 percent increase. However, the Labor Department's index of prices for imported goods from European Union countries was up less than 14 percent over the same period.
There is usually a substantial lag between changes in relative currency values and changes in traded-goods prices. Nevertheless, it seems clear European exporters have absorbed a substantial share of the increase in the euro's value in order to hold onto their markets.
Japan and China
In the case of Japan, government intervention helped keep the yen from appreciating early this year. Other fluctuations in the yen's value over the past several years have had very little impact on the prices paid by U.S. importers of Japanese goods. Between early 2001 and early 2002, the yen plunged to about 134 to the dollar from 110. It then reversed course and strengthened substantially through the second half of last year.
In contrast, the price index for Japanese imports to the U.S. has changed only slightly and currently is about 5 percent lower -- not higher -- than it was when the dollar peaked in early 2002.
And then there is China with its pegged currency, about which Snow and the Europeans all complain regularly, to no avail.
The Europeans are right to say they shouldn't have to bear all the burden of adjustment as the U.S. current account comes down. China, Japan and other Asian countries with pegged or largely pegged currencies should do their part, though like everyone else, they don't want to lose their export markets.
HC
"... if you've got a chart, I have an opinion!"
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holycow
Member
Username: holycow
Post Number: 386
Registered: 08-2004Rating: N/A
Votes: 0
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| | Thursday, November 18, 2004 - 05:30 pm: |
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Playing Hardball with the Europeans...
... Against the euro, the dollar extended its decline this year, with the rate in New York moving to $1.304 from $1.296. The dollar fell to 104.06 yen, from 105.38.
"It's become obvious the U.S. administration isn't going to stand in the way of dollar weakness," said Jeremy Fand, senior proprietary trader in New York at WestLB. "The U.S. administration is playing hardball with the Europeans. If the Europeans aren't going to stimulate their economy, they have to understand there's a consequence."
A rising euro may weaken economic growth by making European exports more expensive. Sales abroad account for a fifth of the euro region's economy, which grew at a quarterly rate of 0.3 percent in the third quarter, the slowest pace in more than a year.
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HC
"... if you've got a chart, I have an opinion!"
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holycow
Member
Username: holycow
Post Number: 387
Registered: 08-2004Rating: N/A
Votes: 0
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| | Thursday, November 18, 2004 - 05:32 pm: |
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Warren Buffett's $12 billion bet
``We think that over time that the dollar is likely to decline in value against some of the major currencies,'' said Buffett, 73, in an interview before Berkshire Hathaway Inc.'s annual shareholder meeting in Omaha, Nebraska. In the last few months, Berkshire has added ``more than a little bit'' to its foreign currency holdings, he said. They were last disclosed at $12 billion as of yearend.
HC
"... if you've got a chart, I have an opinion!"
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