The Flinchum File

Thoughtful Economic Analysis and Existential Opinions
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Grasping at the Export Straw

Yesterday was a good day in the stock market with the Dow closing up 75 points.  That was because something unusual happened . . . we got some good economic news, i.e., our trade deficit narrowed to only $43 billion.  Politicians and voters bemoan the falling dollar, but it is good for business!  It makes imports to us more expensive (therefore, we buy less from foreigners), and it makes our exports cheaper to foreigners (therefore, they buy more from us).

In fairness, some of the decline in imports from Japan was due to their inability to produce things we normally import, due to their tragedies, but most of it was due to the falling dollar.

It is in the best interest of politicians to talk about “King Dollar,” while they do everything they can to de-value the dollar.  To do so, you run a big deficit, increase money supply, and keep interest rates low.  Of course, devaluing a nation’s currency is only a short term solution.  At some point, the currency becomes worthless unless you balance the budget, increase money supply at the same rate as GDP growth, and let the market set interest rates.

Today, there hasn’t been any good news, and the market is drifting down, as I expect it will over the next few months.  Take the summer off, and don’t be grasping at any straws.