quarta-feira, junho 01, 2005
Pois...
The US trade deficit has been growing due to strong import growth, given the huge cost advantage of Asian producers. Stronger goods exports might reduce it only slightly; as for services, the US trade surplus peaked in 1996 (as % of GDP) and further improvements cannot offset the goods trade deficit.
So shouldn’t there be more pressure for devaluating the dollar? Asian countries could in fact make a bargain out of it: a fall by 10% would allow cheaper buys of oil and raw materials without any substantially damage to export capacity (labour would be paid at 1,1 instead of 1 dollar/hour…).
However, China can hardly spare a single job. The country has to provide them (plus housing, services and infrastructure) for an additional 20 million people moving from the countryside to the cities - yearly. And that task has been an ally for currency stability against the dollar. Additionally, if the dollar were to fall by 33%, Asian countries would stand to lose + 600 billion dollars in their currently dollar-denominated reserves…
The implicit deal is: we take your paper, which we know will one day be worth less than today, and in the meantime we will keep on (creating many jobs, making and) selling goods to you.
So can the US twin deficits keep on living on the kindness of strangers? It is an unsustainable trend; the question being when, not if the dollar will devaluate (substantially, to have any effect on the trade deficit).
A lower dollar and a contraction in US domestic demand will be deflationary events for the world economy (thus the widespread criticism on the deficit may be a case of “be careful what you wish for…”). And in all likelihood, that adjustment, albeit slow, will be potentially more traumatic for the less resilient Continental European economies…
John Mauldin (edited)
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So shouldn’t there be more pressure for devaluating the dollar? Asian countries could in fact make a bargain out of it: a fall by 10% would allow cheaper buys of oil and raw materials without any substantially damage to export capacity (labour would be paid at 1,1 instead of 1 dollar/hour…).
However, China can hardly spare a single job. The country has to provide them (plus housing, services and infrastructure) for an additional 20 million people moving from the countryside to the cities - yearly. And that task has been an ally for currency stability against the dollar. Additionally, if the dollar were to fall by 33%, Asian countries would stand to lose + 600 billion dollars in their currently dollar-denominated reserves…
The implicit deal is: we take your paper, which we know will one day be worth less than today, and in the meantime we will keep on (creating many jobs, making and) selling goods to you.
So can the US twin deficits keep on living on the kindness of strangers? It is an unsustainable trend; the question being when, not if the dollar will devaluate (substantially, to have any effect on the trade deficit).
A lower dollar and a contraction in US domestic demand will be deflationary events for the world economy (thus the widespread criticism on the deficit may be a case of “be careful what you wish for…”). And in all likelihood, that adjustment, albeit slow, will be potentially more traumatic for the less resilient Continental European economies…
John Mauldin (edited)
