Trade deficits ultimately affect the value of the currency in international money markets. Those $3T American dollars floating around overseas are fundamentally a debt. The holders of american dollars accepted them as an act of faith, in the belief that such can be traded for other currencies or used to purchase dollar based assets, the exchange rates being set by market forces. Market stability depends on a nation's ability to defend the value of their currency against others, mostly achieved through buy-backs with other currencies held in reserve by themselves or their economic allies.
Whenever the imbalance becomes too great to maintain faith in the perceived value and the ability to carry out such buy-backs isn't available, the value of a given currency will fall, often precipitously. For the population on the losing end of this scenario, the price of imports rises sharply, interest rates increase dramatically, and inflation becomes a serious issue. Relative value for exports increases, but that won't help much if the industrial capacity to produce export goods is non-existant....
There are a variety of ways to exploit currency exchange rates available to governments and investors. The Chinese, for example, peg the value of the Yuan unrealistically low against the dollar to encourage the flow of investment capital into their economy and provide growth. This also maintains a market advantage for chinese goods- their low price is due, in part, to the exchange rate. When that investment torrent slows to a trickle or when it suits other political purposes, they'll make their move...
Investors can reap huge profits in currency exchange markets whenever such shifts occur. There's even a futures market, and margin buying for those with the right credit references. Billions can be made or lost virtually overnight, as George Soros would attest. Nations with truly rational fiscal policies and positive trade positions come out on top, those who don't ultimately suffer.
In the short term, international borrowing and deficit spending helps absorb some of the excess currency, so long as faith in the given currency is strong. Realistically, however, the practice merely masks long term imbalance, making the ultimate denouement even more difficult for the population of that nation... when the day comes that their government can't borrow in their own currency, they're buried....
That's the general population, of course. The financial elite, those of unassailable wealth, can and will exploit the situation no matter what. As we've seen in other economies, like Argentina, they'll deliberately create such scenarios for their own benefit, knowing the ultimate result beforehand. Yeh, the Argentines did just fine, for awhile, enjoying the low price of imported goods and the largesse of govt deficits- until the plug got pulled, the middle class annihilated, their collective assets largely sold off and debt maintenance skyrocketed to consume ~37% of their federal budget...
So, is Walmart good for America? Depends on how you define it. Yeh, sure, it feels good now, like a toke off a crack pipe- nothing like it, better than orgasm, absolutely terrific. So good, in fact, that it completely distorts your judgement, and you'll do things you know aren't good at all to maintain that feeling...
Whenever the imbalance becomes too great to maintain faith in the perceived value and the ability to carry out such buy-backs isn't available, the value of a given currency will fall, often precipitously. For the population on the losing end of this scenario, the price of imports rises sharply, interest rates increase dramatically, and inflation becomes a serious issue. Relative value for exports increases, but that won't help much if the industrial capacity to produce export goods is non-existant....
There are a variety of ways to exploit currency exchange rates available to governments and investors. The Chinese, for example, peg the value of the Yuan unrealistically low against the dollar to encourage the flow of investment capital into their economy and provide growth. This also maintains a market advantage for chinese goods- their low price is due, in part, to the exchange rate. When that investment torrent slows to a trickle or when it suits other political purposes, they'll make their move...
Investors can reap huge profits in currency exchange markets whenever such shifts occur. There's even a futures market, and margin buying for those with the right credit references. Billions can be made or lost virtually overnight, as George Soros would attest. Nations with truly rational fiscal policies and positive trade positions come out on top, those who don't ultimately suffer.
In the short term, international borrowing and deficit spending helps absorb some of the excess currency, so long as faith in the given currency is strong. Realistically, however, the practice merely masks long term imbalance, making the ultimate denouement even more difficult for the population of that nation... when the day comes that their government can't borrow in their own currency, they're buried....
That's the general population, of course. The financial elite, those of unassailable wealth, can and will exploit the situation no matter what. As we've seen in other economies, like Argentina, they'll deliberately create such scenarios for their own benefit, knowing the ultimate result beforehand. Yeh, the Argentines did just fine, for awhile, enjoying the low price of imported goods and the largesse of govt deficits- until the plug got pulled, the middle class annihilated, their collective assets largely sold off and debt maintenance skyrocketed to consume ~37% of their federal budget...
So, is Walmart good for America? Depends on how you define it. Yeh, sure, it feels good now, like a toke off a crack pipe- nothing like it, better than orgasm, absolutely terrific. So good, in fact, that it completely distorts your judgement, and you'll do things you know aren't good at all to maintain that feeling...
Seriously, beyond your hatred for unions, why should Wal-Mart be able to fire workers for attempting to unionize? Isn't it their right to associate freely and to collectively bargain if they so desire?
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