Wed, 07 Jan 2004

Import/Export

I've been writing quite a bit recently because there's been much stuff, nonsense, and folderol published lately. The most recent I've seen is this:

Many economists predict that the dollar will continue to decline for some time, and that the declining dollar will help boost American industry by making American products cheaper in countries with strengthening currencies. "In the short term, it is probably helping the United States," said Robert Hormats, vice chairman of Goldman Sachs International.

Remember that money is just a thing. It's quite possible to have too much cash, particularly if you can't trade anything for it. The Germans discovered this in the 1930's, when they turned their currency into toilet paper. If you've traded away too much cash for goods, people will start to reject your cash. Your currency gets devalued on the global market. Same as Paris Hilton's currency has become devalued.

We are currently in that position. We have traded too many dollars for hard goods, e.g. from China. Now the Chinese have dollars that they don't know what to do with. They don't want our stuff quite so badly, and they can't buy things from other countries, because they don't want dollars either.

Mr. Robert Hormats is describing something that is bad as if it were good. We don't export because it's good for business. We export only so that we can import. Importing is the good part, because you get goods and give away pieces of paper. Exporting is the bad part, because you have to take back those pieces of paper, and you have to ship goods.

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