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Originally Posted by rzande1
Ok first off our trade deficits are terrible because it is the export of wealth from the country. The wealth is transfered out of the country to others. They now sit on all these dollars. What can they do with it? They buy our debt and then they invest in our industries. They do this and make more money. Then what happens is they reinvest even more and more in the country. This is an endless cycle here.
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Actually, that is a good thing. The foreign investment you refer to builds, for example, manufacturing facilities here in the U.S. The automobile plants of Toyota serve as a useful example. The facilities were built by American construction workers. The facilities employ American workers. The products these facilities produce are sold primarily to Americans. If these products are less expensive than comparable “American” automobiles, then the American consumers benefit. That portion of the output not consumed here in the U.S. is exported, employing additional Americans and increasing American exports.
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Originally Posted by rzande1
The problem is that at some point people start to loose their confidence in our economy as our debt to others grows. Just like as has been said by jseal a credit card. Well unfortunately....as you build a larger and larger and larger balance you eventually get to the point where hey i cannot make the minimum payment. Well what happens when the us can no longer make that payment and no one will lend us more money to pay the interest? We get screwed. Our dollar value will fall into worthlessness and we will have problems.
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In your scenario above, as the exchange rate for the U.S. dollar drops, the cost in dollars of imported goods increases, suppressing demand for the now more expensive imported products and redirecting American purchasing towards locally produced goods and services.
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Originally Posted by rzande1
Then look at for example china. They are sitting on huge amounts of dollars. Why is this a problem? Well sure we get crap cheap from them now....but we weaken ourselves. We loose our ability to manufacture at the levels that we need if lets say there is a war. We loose our high tech and defense manufactures and then we get hurt because we dont make our own tanks etc. Did you know for example boeing is building a plant in vietnam?
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The Boeing 747, 767, 777, and now the 787 aircraft are manufactured in Everett, Washington. Which airframes are manufactured in Vietnam?
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Originally Posted by rzande1
Well back to china. Imagine what will happen if they were to dump all that onto the market? Down it goes. Also it becomes a weapon. Say we want energy and they want the same. We can afford it. Well they dump enough currency on the market so that ours isnt worth enough.
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In order to do that, the debt would have to be sold at a loss. Given that the
2005 U.S. GDP was $12.49 Trillion, and the
2005 Chinese GDP was 2.225 Trillion, which economy do you think would be most severely hurt by that event?
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Originally Posted by rzande1
Now we cannot afford it. Or they use it as a threat. Say in war this happen. We can no longer buy from our allies. Shall I continue? BTW jseal your argument doesnt work. At a certain point credit cards run out of available credit. We cannot print money either. Only the government can do this. Only the government can get away doing this without any stopping it.
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Actually, the government cannot get away with it. The debit will be paid one way or another. If the government prints more money to pay the debts, the supply of money will increase, and with it inflation. For a vivid example of this, ref
Weimar Germany circa 1923.
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Originally Posted by rzande1
P.S. Check the amount of that the us actually owns of their own industries and natural resources. U will be very surprised.
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Why does that matter?