Re: trade balance

[Massimo Portolani <mxp@xxxxxxxxxx>]

On 12/mar/05, at 19:56, Michael Perelman wrote:

> Does anyone have any new thoughts about the trade deficit?  Bernanke
> attributes the deficit
> to high US growth.

I think he does so because he considers the high-investment and
low-domestic-saving
approach to the deficit. Under this perspective it appears to me that
if the US invests a lot (and in this period
it must be public spending, probably  in military or security related
issues) and there are not enough
domestic savings, there is a need to borrow.

>  What sort of growth rate would bring the foreign trade accounts into
> balance?

It seems to me difficult to say.
If growth is mainly in exporting industries, of course it helps (anyway
one should always consider the low level of
US export, that, if I am not wrong, is about 10%).
On the contrary higher growth and little export is simply increasing
the deficit because there
is a need to borrow more.

> Reducing the value of the dollar was supposed to help.  How much worse
> with the
> balance the if the dollar had not fallen?

That always helps if you have an industry with something ready to be
exported.
Is this the case today?
May be intellectual property is a growing type of product.

It seems to me that the falling dollar helps exports only,
but has a few  drawbacks like the risk of a flight from dollar
denominated assets and makes
it easy for foreigners to buy property and industries in the US.


> Any thoughts?

The US are in a special condition because for debts  denominated in USD
there is no risk of a default, what happens is simply that the
creditors will have
paper with less value, of course they won't be happy to keep financing
but anyway
where will China or Japan sell a big part of their production?
Perhaps they will use the Dollars to buy oil and property or industries
in the US or in countries where they
have a dollar-linked currency.
Anyway it seems to me that this is a system that needs coordination and
no defection because all the world
economy is build on paper (notes) and (temporary) deficits that
(should) move from one side to the other.
The risks of no coordination appear to me to be terrible.

Massimo Portolani