Quote:
Originally Posted by Claeren
Government debt/deficits, consumer debt and foreign investment.
But yes, what you are getting at i think it true, long term it all has to equal out. You cannot borrow forever and ever.
Of course you could do what America does and literally and shocking simply print more money but that SHOULD increase inflation and eventually drive foreign investment (and confidence) away - thus reducing the value of the dollar. If any other country printed money like America they would have long ago pulled an 'Argentina' in terms of foreign valuations of their currency.
Lucky for them global trade is primarily done in USD, as are the largest stick markets priced in USD. Even this is being eroded over time though with booming markets in London and Hong Kong (among a number) and efforts by countries like Iran to price oil in Euro's. SOME suggest that when Iraq started pricing in Euro's it was the last straw for war....
Claeren.
PS - The explanations were not 100% correct IMO but i don't have time to add to them...
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yah this is a toughie to explain. eventually, you would think that things would need to balance out...but there are mitigating things here.
Claeren does a good job, so i will simply add to this. the concept is that the trade balance or deficit is part of an exchange. so as goods enter, dollars leave. if you import more than you export, you are in a deficit. i just did a quick search on the net about this as i read a good article about this a couple of months ago, but i couldn't find it. there seems to be a consensus that foreign governments and banks are financing this debt through the purchase of us government stocks and bonds. the theory would be that any interest payments due would be less than the us government is "making" as a whole. i use quotes there because the us government is only the people and the finances (including taxes) raised by america. that's it. nothing else. the big deal is when investors don't think that the us can pay for those bonds or interest payments, or get a better/safer rate of return elsewhere...ie canada.
the underlying strength of the american dollar is that it is the defacto standard for many financial transactions around the world today. things are valued in usd even when they have nothing to do with either the evaluation or the countries. the us dollar is seen to have some intrinsic value. so, when you are in mexico, they like usd. asia? usd. in fact, anywhere that the currency value is a concern, the usd is seen as having strength against other currencies.
its a tricky one. smarter people can probably explain it better than i.