>My problem with this kind of analysis of the relation between CAD, fiscal
>surplus and currency value is that it is akin to the search for an inverse
>square law that applies universally to all countries.
You're right. But what else can you do in this economics game, but look for analogies and precedent. There are no reagents, as the man said.
>So the US prints dollars or allows its currency to fall, and the debt is
>restructured. Big deal?
Wow, this is quite the role reversal here!
For one, if the U.S. is to continue going on as it has, it needs to finance a large current account deficit. That gets harder to do when you develop a name problem, as they say in the lending business. And when your name is mud, in ascending order of severity, you have to pay higher interest rates, borrow in someone else's currency, or go unfinanced.
And for two, allowing the currency to fall - aside from the name-muddening effects it would have - would excite domestic inflation. And as San Francisco Fed president Robert Parry said in a speech yesterday ""One of the anchors of your good inflation is no longer serving that function and there is a concern. For the dollar to make positive contributions to holding inflation down it has to continue to improve, it just can't stay flat. And that is not the case, it's beginning to weaken."
(He also said: "It's possible that the recent strength in productivity won't last very long - it might largely be due to the strong business cycle upswing we've been in. In that case, continued strong real GDP growth and tight labor markets eventually would create pressures for inflation to increase.")
Of course, Parry is pretty hawkish, and none of this may come to pass.
> >it is also retiring equity with debt close to the
> >tune of 2% of GDP a year.
>
>Well this must be for tax purposes.
Not really. It's because of takeovers and buybacks, the buybacks to please the shareholders and because they've got nothing better to do with the money (you know, insufficient profitability).
>If this is the last ride of the US Empire, it's helluva of a ride.
That it is! But George Friedman of Stratfor says we're still early in the American Millennium!
Doug