So the trade deficit is at an all time high… what exactly does this mean? What are the ramifications? Is this why the dollar is losing value?
Your first question is pretty basic. We are selling less stuff to other countries than they are buying from us, and the imbalance is higher than it ever was before.
The falling value of the dollar, relative to other currencies, probably helps us a little in the trade balance. A weak dollar makes our goods somewhat less expensive over there, and it makes their goods a little more expensive over here. However, their goods are already so much cheaper than ours that it doesn’t help us much.
I am not an economist. In order for you to get any more confused about these questions, you’ll need an economist. I have only a little better understanding of this stuff than the average jamoke on the street. That’s Main Street, not Wall Street.
The current accounts (trade imbalance) deficit is a major reason why the dollar has fallen so far. The exploding Federal budget deficits are another reason.
That depends on who they are. Goods from other industrialized nations will be harder to sell in the U.S. with a weak dollar.
It means that the whole Globalization thing is blowing up in our faces.
As I said it would.
As AskNott said, it means the value of imports into the U.S. is greater than the value of exports. In fact, the highest difference to date, although I don’t know if that is inflation-adjusted or not.
By itself, it doesn’t mean much. The current account deficit is more important. It’s the total wealth entering (or in our case, exiting) the country. So, it includes investments and other wealth. Foreigners are investing in U.S. equities, countering some of the loss due to imports. The fact that the U.S. has a current account deficit means we have a net loss of wealth. Even this isn’t necessarily a bad thing–it just means the resources that were here are being redistributed to other countries. But trade is not a zero-sum game, and more efficient use of our resources can balance the loss of wealth.
Additionally, as long as investors (from all nations) are willing to extend credit to the U.S., there is little actual effect on us. Because the U.S. has been an excellent place to invest in the past and continues to generate good returns, investors seem to be willing to lend to us.
Of course, it can’t last forever. An effect of this is that other countries will become more attractive to invest in. This means investors buy stocks in Europe/Japan in euros/yen, strengthening those currencies and weakening the dollar. Weakening the dollar encourages the export of more American goods and services, discourages the import of foreign goods/services, and makes American investments less expensive. So changes in the exchange rates are adjustments to the trade equilibrium.
(This seems more like a GD response rather than GQ.) Can you explain in more detail?