What solution can be done to the trade deficit, in particular with China?
Friday, April 24th, 2009 at
5:30 pm
Phil C asked:
How long this story can be sustained? How will this correct itself? Commodities are going up in values mainly because of 2 things, the lack of investment in them because they were too cheap earlier to justify the investment and secondly, the demand was not as high as it is now that China as more and more money from its trade surplus. Oil demand is increasing, partly from developing country like China who are increasing their demand.
Where is this all heading?
Will the US dollar keep falling down?
How long this story can be sustained? How will this correct itself? Commodities are going up in values mainly because of 2 things, the lack of investment in them because they were too cheap earlier to justify the investment and secondly, the demand was not as high as it is now that China as more and more money from its trade surplus. Oil demand is increasing, partly from developing country like China who are increasing their demand.
Where is this all heading?
Will the US dollar keep falling down?
Tagged with: Commodities • Investment • Surplus Oil
Filed under: Commodity Trading
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I don’t think the people who can do something about this complex issue are home answering Yahoo questions.
Seek out an economics professor. Or sign up for some college courses.
Yahoo doesn’t give you enough space to solve world problems with one question and answer.
Nobody knows how long the large US trade deficits can be sustained. But most economists say that these deficits cannot continue forever. And the more these deficits accumulate, the more likely it becomes that investors will panic and sell off the US dollar.
Or the countries that are accumulating the US dollars now may want to spend them in the US some time in the future. And such spending will cause inflation of prices.
Or countries that are accumulating US dollars now may continue to hold them in US government bonds which pay interest. And eventually these interest payments will become so large that much of US tax dollars will end up going to foreign countries instead of being used for the benefit of US citizens.
None of these scenarios are good. But there is no easy way to cut back on these trade deficits. People in the US are used to live beyong their means. And such a habit is very difficult to break. People will change their spending habits only when economic circumstances force them to.