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You are right Paul, but please take a look at the alternative over the long term. We are increasing indebted enormously to foreign interests and lose control of our own. You mention inadequate U.S. savings.
That can be solved by domestic tax and other measures. Moreover, it is not necessarily that we don’t save enough, part of the problem is over-saving in much of the rest of the world. Cheers, Clyde From: Salon <salon-bounces@listserve.com>
On Behalf Of Chas Freeman via Salon The problems a Trump second term poses for the dollar
Barry Eichengreen’s analysis of how the outcome of the US election and ensuing policy changes
might affect the dollar (Markets Insight, July 2) was interesting. He notes that Donald Trump’s advisers are considering ways to weaken the dollar to offset the large trade tariffs Trump insists he would implement; and to improve American competitiveness.
Such measures might include a tax on foreign purchases of US assets to prevent the dollar from rising.
Discouraging foreign capital flows to the US would reduce one of the most important sources of financing the US balance of payments and budget deficits. Negative
results would include driving up US interest rates since the Treasury must pay whatever interest rate the markets demand to finance the budget deficit.
Foreign financing of our deficits, which compensates for inadequate US saving and lax fiscal policies, is one of the most important, and least understood, aspects of
the dollar’s reserve currency role. If a future Trump administration insists on a weaker dollar, foreign investors would increasingly question whether the dollar was a good store of value and slow investment in the US.
They already have new reasons to worry about the rule of law that underpinned the dollar’s strength for decades. These include the US Supreme Court’s recent decisions ending
the Chevron “deference” to federal agencies’ expertise and which ensured even-handed treatment of foreign capital; enabling the president to do virtually whatever he wishes without fear of prosecution; and Trump’s threats to directly influence
the Federal Reserve’s management of monetary policy.
This new judicial framework, plus a new Trump administration’s efforts to alter the dynamics of foreign exchange and international trade, would pose serious new problems
for the dollar and foreign financing of our twin deficits.
J Paul Horne
Alexandria, VA, |