Quote:
Originally Posted by FlyingCaddy
Yes, Yes, YEs, but I think the current dynamics are changing especially since foreign consumsers of U.S. debt are losing confidence in Bond investments and the Fed is acting very irresponsibily with its constant rate cuts. If it keeps doing this, the Fed will paint itself into a tricky situation like Japan only 5 years ago where the interest rate on bands were negative. Moreover, supply issues are effecting exchange rates of the Dollar compared to the Yuan, Yen, Won, and Euro, which will harm consumption because the US is an import driven economy.
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You're conflating issues here and missing out on what fully drives exchange rates. Investors are reacting some to rate changes, but also to the fiscal outlook many years in the horizon and the current macroeconomic outlook. For the most part, it wasn't individual investors sucking up treasuries (created due to fiscal deficits), but most often the so called sovereign wealth funds. Individual investors have been seeking the higher rates of risk-adjusted return that the US offers, and this is evident due to the large capital inflows that you can see in the financial account.
So, the fact that greenbacks aren't anchored to gold is mostly irrelevant, unless you are suggesting that the US go to a fixed exchange rate regime with an uncompromising gold/dollar anchor, in which case, you offer a suggestion that neuters the Fed, prevents any ability to react to world macroeconomic shocks, and is fraught with boom/bust cycles that are exacerbated by the lack of price stability.
Lastly, please define for me the cutoff for an "import-driven" economy. Thanks.