Reply #19: Ah yes. The "I plead ignorant" argument.

[Code_Name_D]

It seems that when ever you score against a supply sider, he just happened to be looking away at the cheer leaders at the time, and will not recognize the point.

That being the case, it sure looks like I scored on you several time, for you don't seem "to get" several points that I have just made.

However you slice it, however, there is still a massive export portion of the US economy. The moderate truths behind your statement just mean that a weakening dollar doesn't help the economy short-term NEARLY as much as it once could have. NOT that there is no benefit. Proftis obviously ARE rising, and the daily "upward surprise" vs. "downward surprise" ratio of business income reporting has shifted dramatically positive.

Than why is the trade deficit* continuing* to expand? The erroding dollar has been a problem for a year. But the defist has only grown. Please explane this contradiction.**
(*Corrected spelling. **Restored edit.)

Because we consume more than we produce? we're a glutton nation with tons of wealth (by comparison to the rest of the world). The average family in China doesn't need a new microwave every time their current one gets dirty. They don't even have a microwave. The trade deficit with China is something like $13 Billion with imports to the US of $15 Billions. That means that we only export about $2B in products to China... because there is very little we produce that they can afford or that fit their position in the consumption ladder (first you need a stove before you by a new pot-pourri pot to go on it. Trade with England is much closer to balanced because we produce lots of things that they want.

Your texts book response regarding what a trade deficit are, fails to answer my question. You have claimed that there is a "massive export component." But such a claim is irrelevant because the imports are even MORE massive, and becoming MORE massive with each passing year.

Your argument predicts that as the dollar drops in value, this will result in a shrinkage of the trade deficit. The opposite is happening. Please explain this contradiction.

Besides, the trade deficit almost tripled between 1997 and 2000... was it because we weren't manufacturing things anymore?

Oh yes, lets just blame Clinton. But if you want to play that game. Rapier has been posting a chart on the trade of the dollar.

From this time line, we can see the dollar, between 97 and 00 make a significant rise, coinciding with your tripling of the trade deficit. Consistent with your argument.

But we can see that sense 2002, the value of the dollar has dropped. But the trade deficit has NOT dropped according, contradicting your argument. Are you trying to selectively pick your data points to prop up your argument, ignoring the contradictions?

The erroding dollar has been a problem for a year. But the defist has only grown. Please explane this contradiction.

I don't understand the supposed "contradiction". A weakening dollar is expected to reduce the overall trade deficit somewhere between a year and eighteen months later (which is right around now - of course they did it on purpose to make things look rosey for the election).

Actually, it has been 23 months sense the dollar has begun to weaken. Where is the reduction of the trade deficit within that time. Or are you making up your numbers as you go along? You have already noted that the 18 months was likely a political move to prop up W's election chances.

The trade deficit shrank substantially in the third quarter of this year due to a 9.3% increase in exports and a .1% increase in imports. Was it because we suddenly started making better cars than the Japanese? You don't get to make up the facts on the fly to suit your argument.

Resulting "substantial" net change of 8.3%. Right. And the "productivity revolution" has nothing to do with this? The fact is I can not believe your numbers, because I fear they are faked buy this administration. Want to bet that this years 4th quarter numbers will revise that figure down ward?

Dude. For this to be true, they must furst convert there Euors to dollars. This kind of goes against the point of a theam park in Eruope, dosn't it.

Dude, you're going to have to make this point again. It doesn't seem to make any sense. Again, I'm talking about US tourists who go to the outer banks instead of the French Riviera. NOT foreign tourists who decide to come here. There is no currency transaction involved. It's precisely the bad exchange rates that make them stay here.

Your next couple points continue to assume that I'm taling about people coming HERE instead of Americans choosing not to go over THERE because the prices have gone up. I DO believe than a weak dollar makes it marginally more attractive to travel here than it was before the dollar fell (just because it's CHEAPER), but it isn't my point. However, I can defend both points easily.

All right. I will buckle here and concede the point. But is this because of the weakling dollar, or becomes of a weakening US economy. If you are correct, than as European travel drops, domestic travel should rise. This last thanksgiving travel season was less than promising, if I recall my NPR report correctly.

But I still fail to see how this is relevant to the shrinking dollar? The problem is that the US economy no longer has the needed incoming investments to support the trade deficit. A foreign tourist into the US was port of that incoming investment flow.

Ah huh. Like the dot.com endistry changd every thing. Like how the tax cuts would explode the economey. Like how Enron was a titen of the indistry. Electricity too cheep to meter.

I'm not sure about the connection. If anything, it makes my point. The NASDAQ collapsed in a loss that far exceeded the dollars involved in Argentina, yet it didn't take the system down with it. It didn't even come close.

False! The World Bank bailed out Argentina, only so much as to pay back the NASDAQ losses, effectively bailing out the NASDAQ. Manipulation in the system negates any sort of economic rules we might observe in a natural economy. Had Argentina not been bailed out, the NASDAQ would have taken the hit to the tune of half a trillion dollars.

The argument that the us dollar can not collapse* because* of some kind of mythical quality held by the dollar is just another example of the myth of supply side economics, an is no more true than the Easter* bunny.

In fact, the belive in this magical property is in fact a self fullfilling profisy, for necisary steps are not takien to address the problem.

There's no magic involved. We're simply talking dollars here. See, in the absence of rampaging inflation, the US Dollar may become less atractive overseas as the value falls, BUT IT'S ALWAYS WORTH A DOLLAR HERE. And there's a much bigger pool of investible assets here in the US than what would need to be replaced by foreign countries pulling our their investments. It's a relative size thing. Once a plunging dollar causes rates to go up enough, treasury securities become too hard to pass up for lots of investors.

Another mitigating factor is the likely purchase of dollars by other countries (not their individual investors). Japan has been buying up dollars in an attempt to keep it from falling to far. The falling dollar is FAR more likely to cause economic damage overseas than it is here.

That is until inflation makes it's influence felt. Rapier has already argued that inflation is in fact already rising, as a result of spiking fuel and energy costs. And what is OPEC going to do? They have one of three options:

1) They can raise the price of oil, demanding more dollars for each barrel in order to mitigate the losses they are seeing as a result of the drop of the dollar.

2) They can switch to the Euro to escape the sliding dollar all together. A move that would doom the dollars hegemony and take away the last leg of a one legged table still holding up the dollar. As GoreN4 has argued, this will prompt other nations to "flush" dollars out of their system, and flood the economy with dollars. And they will do so drastically, as each dollar sell off will make a run on the remaining dollar assets.

3) They can continue to eat the loss.

There is also something else you fail to take into account. That infernal trade deficit. The value of a dollar here in the US will remain constant, by definition. But the cost of all of the imports will rise significantly, leading to index inflation.

Hence, the feds refusel to raise intrest raits.

OK. I don't get that. As soon as the Fed announces they are raising rates, we'll see a drop in several markets, but we'll see a big spike in the value of the dollar. A BIG reason the dollar has been so weak is the Fed's continued insistence that they will keep rates low for the foreseable future.

False! There are a number of negative factors pushing down the dollar. The biggest one is the shire volume of new T-bill sales as a direct result of the exploding deficit spending under W. (Who says presidents don't effect fiscal policy.) Simple supply and demand states that as new dollars flood the market, the supply out stripes demand, and the dollar falls. But there are numerous other factors at work as well. Losses do to corruption and scandal, boycott of "brand America", the week US employment figures, just to name a few, all have negative influences.

Raising interest rates only provides a positive influences on the value of a T-bill. The fact that the fed has taken this option off the table only hurts the situation even further. Plus, I remained you that the dollar has been falling ever sense 2002, the fed made that particular comment last week.

We may indeed see a big spike in the dollar, but it will be a short term really, and I suspect no where near as large as needed to off set the losses.