Smarty_Pants

Strategies to End the Crisis

“Beyond that, demand for goods and services in the United States and Europe are being driven down by the undervalued currencies and massive purchases of dollars and euros by China, oil exporters like Saudi Arabia, and other emerging economies. “

I’m not sure whether this means:

1) Demand for US goods is lower because foreign goods are cheaper; OR
2) Demand for Chinese goods is lower due to undervalued foreign currencies.

The sentence is ambiguous in this respect.

Number 2) doesn’t even make sense as lower foreign currencies translate into more purchasing power for the dollar and hence lower pricing on foreign goods. This would tend to increase demand for foreign goods as any Microeconomics textbook will tell you.

Number 1) at least makes sense from an economic standpoint. With lower prices on imports people will buy those before they buy higher priced US made goods. While that may be bad for US manufacturers, it is good for the consumer. After all, isn’t it better to buy the same item at a 25% savings than to pay the higher price? What the author overlooks is WHY US made goods are more expensive than foreign made goods which need to be shipped half way around the world to compete in the local marketplace.


“[Foreign governments’] huge trade surpluses translate into trade deficits in the United States and Europe and the need for massive borrowing to keep up demand for goods and services in Western economies. That caused the housing bubble and over borrowing in the first place”

This makes absolutely no sense. The reason the foreign countries have surpluses is because Americans buy more of their products. Of course their trade surplus “translates” into our trade deficit. It has to. One party’s surplus is the counter party’s deficit. How that caused a “need for massive borrowing” is beyond me.

What it did was put massive amounts of US currency in the hands of foreigners. They had to do something with it, so they CHOSE to buy US debt when the US offered to borrow it on the market.

Foreign governments could have CHOSEN to buy other things instead and the US would still be borrowing “massive” amounts of money. The borrowing has nothing to do with trade deficits, the deficits only served to provide a means for the foreigners to be able to lend to the US when they asked for a loan.

How either US borrowing or foreign lending led to the housing bubble is beyond me. I thought we borrowed because the gub'mint spent too much.

I would expect better from someone with a PhD in economics.