Bernanke and Trade Defecit

Discussion in 'Economics' started by ShoeshineBoy, Sep 11, 2007.

  1. I don't get it. Supposedly, "Bernanke Urges Trade Imbalance Fix: Countries Must Work Together to Fix Skewed Trade and Investment Patterns" according to the following link:

    Now how are countries going to do that? How can you make Asians buy our relatively expensive goods and how can you make us quit buying their relatively cheap goods? Only a currency adjustment can do that, right?

    But the article makes it sound like various countries can just set up policies and fix all this:

    "China, meanwhile, has recognized the need to increase its domestic spending and scale back its reliance on exports, Bernanke said. Those and other measures will help global trade imbalances over time, he added."

    I just don't see how it's going to happen unless, of course, the dollar falls. But here's my question: do you think Bernanke is advocating governmental interference of some sort, i.e. tariffs or artifically changing the exchange rates??
  2. dhpar


    i think you got it. the combination of various policies he mentions should mitigate the dollar decline. but the dollar needs to decline - and ff target cut will help :cool: .
  3. Daal


    he is talking about increasing the savings rate in the US, which is ironic since that will fall even more after he cuts next week. the bottom line is that the government needs to expand 401ks, and make taxes on interest smaller
  4. Makes sense. But it will never happen. There's very little difference between Rep. and Dem. at this point as far as fiscal policy, so I can't see them cutting taxes. Even Bernanke must know that. Plus, at this point I don't think you can make the average American save money. The concept is completely foreign to them. But thx for the clarification...
  5. Could it be that Bernanke is scared and he thinks that others should be as well? Could it be that he is one of the few seeing that the Asians have the Americans by the cajones?

    (See article below.)

    Gold, a U.S. Recession & China's 'Nuclear Option'

    By Stephen Clayson
    10 Sep 2007 at 12:55 PM GMT-04:00

    LONDON ( -- Whoever coined the phrase ‘nuclear option’ to describe the power that China has over the fate of the U.S. dollar hit the nail right on the head.

    With its sustained, massive and calculated purchases of U.S. treasuries, China, along with other East Asian central banks, has held the dollar steady at around the parity it has traded at since 2003 in the interest of maintaining U.S. demand for imports.

    So it follows that by bringing these purchases to an end, China, or one of the other bulk holders of dollars and dollar securities, could give the dollar the final push towards the edge of the cliff that it has been slipping inexorably towards.

    While China is the biggest holder of dollars, with foreign currency reserves of over $1 trillion mostly in greenbacks, the central banks of South Korea, Japan and Taiwan are also big holders. Only one needs to make a break for the exit before the others follow suit, as the last one left holding his dollars ends up taking the biggest loss.

    How steely are the nerves of the Chinese? Are they likely to abandon the dollar now, judging that a recession in the U.S., which could perhaps precipitate a move by one of the other big players at the table, will bring the down the currency anyhow?

    It is a possibility, and there is speculation that the Chinese themselves have begun to sell down their U.S. treasuries. If these sales reach a critical mass then the race may be on, especially if the Chinese start putting the proceeds of these sales into currencies other than the dollar.

    The dollar is already under pressure. Last week, economic data from the U.S. indicating that the sub-prime crisis is starting to make its mark on the wider economy, with some people even suggesting that a recession is in the offing, caused the dollar to lose value and gold to appreciate above $700 an ounce for the first time in over a year.

    More of the same can be expected later this month when the U.S. Federal Reserve cuts interest rates, as it seems likely to do. And if the economic picture in the U.S. continues to worsen then the trend will only continue.

    The phrase ‘nuclear option’ imparts a false maliciousness to any decision by the Chinese to get out of the dollar. It is not in China’s interest to do undue harm to the U.S. economy, as the U.S. remains a huge consumer of Chinese goods and any fall in the dollar only serves to make these goods more expensive to U.S. consumers, as well as to worsen economic conditions by stoking inflation.

    But by holding onto its dollars China is only leaving itself open to a monstrous loss as the dollar depreciates, as it will at some time or another. The U.S. trade deficit is unsustainable, and that is the bottom line. For sure, some economies consistently run large trade deficits, but never to such an enormous extent as is the case with the U.S. economy.

    With the advent of the Eurozone as a rival economic bloc and the resurgence of China in the world economy, the U.S. will not be able to carry on funding its trade deficit, so the dollar must fall to bring things back into balance.

    And the proven inverse relationship between the parity of the dollar and gold means that $700 an ounce may be only the first of multiple barriers to fall for the gold price.
  6. dollar decline will eventually force americans to change their lifestyle. And it will happen fast

    Oil is almost 80 and will go much higher if dollar continue its slide. The whole world will continue to enjoy and US will be put into misery

    There is no other way out of this crisis but to raise rates, encourage savings and responsible debt

    Economy will contract pprobably 20-30% but at least US will emerge helthier like that did Russia 9 years agoe
    If they follow inflationary way the result will be same but only the first part. Till debt promoting is not over US will stay in its misery
  7. There is not even a need for increased rates, let alone decreased rates. The problem is that the Fed is now in a reactionary stance, something they stated they would wait on the data for. Well, we have an unemployment rate of all 4.6% and now we're in a recession (that's the current thought the markets would like us all the believe).

    The fact that a 5.25% rate is relatively low seems alien to many these days and now the bubble will once again inflate.

    "Higher Rates" and "Lower Rates" aren't what we need, we need STABLE RATES and the willingness to let the markets work itself out. This means some will have to fail while others profit. The two sided market is becoming a thing of the past due to "unnatural" intervention.

    The fact that Americans aren't savers is becoming less and less the fault of the American people and more and more the fault of poor monetary policies and excessive government spending. Savers get hosed in this country, PERIOD.

    To encourage saving you have to reward it, but the more you save and make through that savings the more taxation you trigger.

    You have to allow financial winter to occur when the winds are blowing and it looks like snow.
  8. maxpi


    Bernanke on the trade imbalance is reminding me of Obama on Iraq, both seem a little pollyanish. Obama says "Iran needs to step up to the plate and take some responsibility for Iraq".... HUH??? Bernanke says "can't we all just get along?"

    Europe has never had a trade imbalance with Japan, a good example of how to handle the situation. For every Euro of goods coming in a Euro of goods goes out, screw it, let the balance or imbalance play out in another area, like quality of goods. With the US policy it's cheap junky, even poisonous, goods flowing in and services flowing out, it sucks.

    I don't think Americans understand quality that much. The cars are big low quality items, most of the stuff on store shelves is low quality, including the food, they just don't get the quality thing at all. We fought for decades just to have foods labeled with ingredients and 5 out of 6 don't read it... I worked for a German company that was taken over by a cheapshit American corporation, lots of the workers didn't see the difference when the benefits were cut and the wage rises curtailed. I could not understand it but lots of them just could not discern the difference...
  9. You are right, but the dammm political leaders keep screwing things up, they pressure the fed and we never get opportunities anymore because of intervention, this is no free market.
  10. I think this can help a little but I think the issue is forty years of intense Media and Advertising training on tens of millions of Americans. What I'm getting at is that you could make capital gains 0% and the typical American would not save. It's just not in their blood. We're all about consumption not saving.

    Most corporations put in 50% into the 401k. Does that incent people to save more? Well, I don't really know for sure but I doubt it since the savings rate is so low. The savers get all excited: 50% into their 401k is like a geeky party for them. But the spenders could care less since they never intended to save anyway. They've all got subprime loans and minimum payments on their cards. What good is 50% into their 401k going to do them?

    Savers save no matter what the taxes are and spenders spend no matter what (even if they have to pay 21% credit card interest and sell the wife a couple of children into slavery).

    Or am I missing something here?
    #10     Sep 11, 2007