From: Adam Flinton 

Randall Parker wrote:
> The dollar surged far after the Euro first made its debut and now the
> dollar has given up its gains. This is just normal currency fluctuation.
> The dollar could (probably will) go down further to due to the trade
> deficit. This has happened before. Remember the 1986 Plaza Accord? Aware
> of what happened to the US trade deficit as a result? Did the US
> currency become "Third World" as a result? (and whatever
does that mean
> anyhow?)
>


There is a difference. The US is now a massive debtor nation rather than a
creditor. Your spending is being financed by the savings of chinese
peasants. That per se is nullo problemo however what is el-problemo is that
before that it was financed by Japanese & Koreans & before that by
petro-dollar econs etc.etc. going some way back.

If the dollar loses it's reserve currency of the world position then the US
is going to face some very large bills (with interest).


> The US faces the problem that the Chinese and Japanese want to buy US
> bonds in order to maintain large Chinese and Japanese exports.


If they didn't you'd be in recession.

> This, and
> not the US government deficit, is the cause of the trade imbalances.


Who exactly issues sovereign debt & why?

> Other countries (notably Belgium and Italy) have run up total sovereign
> debts in the neighborhood of 130% GDP without causing equally large
> trade deficits. The difference is that those countries didn't have
> external bond buyers eager to manipulate their currencies.
>

They did not rely upon the lira & Belgian franc being a global reserve currency.

Adam

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