Seth Sandronsky wrote:
"The prices of consumer goods have fallen by much more in America in
recent
years than in the euro area, where retailers are shielded from competition
and have not passed on cost reductions."
The Economist misses the main point, IMHO. Low price consumer goods in
the
U.S. are a result of the nation's growing trade deficit, thanks to foreign
lenders. At some point in the future the prices of imported consumer
goods
will rise as the U.S. trade deficit falls and the over-valued dollar
declines. A drop in the value of the greenback would help U.S. exporters
become more price-competitive globally.
------------------------------------------------------
Is this really in contradiction to what the Economist reported? Low consumer
prices are the result of lower-priced goods produced by cheaper labour
overseas and the resulting pressure on domestic US producers to remain
competitive. The recycling of export earnings by "foreign lenders" into US
Treasuries has kept the dollar strong and interest rates low, allowing US
consumers to keep these imports flowing on a sea of debt. The dominant US
corporations are increasingly those who export from abroad, not from US
ports - who use developing economies as assembly points and export
platforms. They're already very price competitive - Walmarts is the poster
child - and a decline in the dollar and higher import prices in the huge US
market would hurt rather than help them. They have been mostly resisting
pressures for a sharp yuan revaluation as result, and have the ear of the
Bush administration, which is resisting congressional pressures for
protection against Chinese-made goods.
I think a decine in the USD is more likely if rising interest rates result
in slowing the housing market, consumer spending, and the US economy
generally. So far, and unexpectedly, the soaring trade deficit by itself
hasn't spooked foreign investors. If the US economy slows, a lowering of
interest rates and decline in the USD, which would normally benefit American
exporters, might well be offset by the spillover effects of a US downturn
slowing demand in Europe, Asia, and elsewhere.
