[lbo-talk] the dollar

[Mark S]

Michael Pollak wrote:
>
>If we're the number one exporter in the world, it would seem our real 
>balance problem is that we're the number one importer.  Our real 
>competition is against ourselves.  Theoretically, even if our exports 
>didn't increase at all, we already have enough to work with that we could 
>fix this problem simply by decreasing our imports.  And if markets were 
>operating according to form, currency swings should do that pretty simply, 
>no?  If we disregard the rest of the world for a moment, our direct 
>balances with Japan, Canada and Europe should've improved substantially 
>when these large falls in relative currency value translated into large 
>price increases and then to substantial drops in demand for their imports.
>
>And yet they didn't.
>
>Isn't that a big puzzle?  Not only theoretically, but also in terms of 
>policy.  If nothing improves in the bilateral balances when we drop this 
>much vs. Europe, Japan and Canada, what makes us think we won't get the 
>same result -- i.e., nothing -- when we drop 20% against the Renminbi?  And 
>what's causing this nothing, in violation of all the classical laws of 
>price and demand?
>
I could be wrong but I remember an interview (LBO's Yen for Deflation?) 
where someone opined that U.S. import demand is more sensitive to U.S. 
interest rates than exchange rates.  If that's true, then the currently 
accommodative interest rates will support imports as the U.S. dollar falls.

M.

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