A Media Article Actually Highlights the Trouble with A Falling Currency
If you listened to the media and political candidates, you would quickly come to the conclusion that the quickest way to prosperity and wealth is to have a worthless currency. Every politician the world over argues for devaluing their own currency vs. other nations, with the logic that this helps domestic manufacturers by making imported competitors more expensive and making their own products less expensive to buy in other countries. **
While the latter two statements are nominally true, the only way this actually helps an economy is if one ignores everyone except manufacturers in markets dominated by international trade. What it ignores is that a falling currency makes purchases more expensive for everyone else. Consumers and service industries and even manufacturers who depend on imported raw materials all suffer from a falling currency. And this is not even to mention the effect on wealth -- if one's savings are all in assets denominated in the falling currency, one is clearly losing wealth as the currency falls.
Well, for the first time in a really long time, I actually saw an article this week that focuses on some of the problems of having a falling currency. via zero hedge.
“I’ve never seen it that high. It’s usually $6.99, maybe $8 but that seems like quite a jump.”
Grapefruit isn’t the only produce to soar in price as fresh fruit has increased by 12.4 per cent since December 2014, and fresh vegetables are up 14.4 per cent, according to data from Statistics Canada released Friday. Led by those surging produce prices, Alberta’s annual inflation rate rose last month by 1.5 per cent, year over year.
The high prices are a direct result of adverse weather in the United States and the lower Canadian dollar since most produce is imported, said Jason Wiebe, president of Chongo’s Market at the Crossroads Farmers Market.
“Tomatoes trade the same as the TSX. It’s a commodity, too, and all produce is traded in U.S. dollars. In November, the retail cost of tomatoes on the vine was $1.99 a pound. Now I have to sell the same box at $3.99 pound.
“What’s going to be really interesting going forward is what happens to local growers come summer. With the dollar, they can make one and half or two times as much exporting than selling here.”
And that may only be the beginning of higher food costs, according to ATB chief economist Todd Hirsh.
“Going forward I think we’ll see even higher upward pressure on imported fruits and vegetables. If not for weather conditions, certainly that low Canadian dollar will affect it. Because the numbers we’re talking about today are from December and now in January we’re almost five to six per cent lower on that dollar….If people insist on eating fresh tomatoes and pineapple in January, they’ll be forced to pay for it.”
** To my eye, every government in the industrialized world is working as hard as they can to hammer down the value of their own currency. As a result, a rising currency tends to mean only that the country in question has a central bank that is not working as hard and as fast as other countries to trash their currency. All of which makes accusations that China is manipulating its currency an enormous joke. Several trilling dollars in QE here and they are the ones manipulating their currency?
mlhouse:
Mercantilist economic ideas are appealing to politicians the same way that "infrastructure" projects. It is something they can take credit for and get the right contributors excited (and paid off).
This is why conventional wisdom believes that a trade SURPLUS is a good thing and a trade deficit is a bad thing. The truth in economics is that there really isn't a good or a bad. THe only issue is who benefits and who doesn't.
The other aspect about trade balances is that if you run a trade deficit with another nation, the only way that deficit can be "paid back" is to run a trade surplus sometime in the future (or current account surplus to be totally technical). A country that accumulates a trade surplus is only getting back electronic debits. If they never use those debits for real goods or services they are the real suckers.
January 25, 2016, 11:50 amJason Calley:
Of course a weak currency is a boon for any nation! That is the main reason that Zimbabwe is such a powerhouse of economic activity!
In case anyone reading this is sarcasm impaired, that is obviously meant sarcastically. No, weak currency are not good for any nation -- certainly not for the population as a whole. And while it is true that a few manufacturers or exporters may benefit from a weak currency the main beneficiaries are the ones making the currency weak in the first place. Why? Because the main way of weakening a currency is to create huge amounts of unbacked fiat currency and then spend it into circulation. As always, the ones who benefit the most are the bankers, the politicians and their cronies. THEY are the ones who have access to this new, "hot" money. THEY are the ones who spend it and get full, undiluted worth from each dollar. This is the "cantillon effect", and naturally, the ones who most benefit from this new and imaginary money are the exact same ones who will always tell you how wonderful it is when a currency is weakened.
January 25, 2016, 12:06 pmjdgalt:
Trilling?
January 25, 2016, 1:16 pmDan Wendlick:
Saw an article last week about how Canadian NHL teams are taking it in the breezers. Their biggest expense, player salaries, are denominated in US$, but much of their revenue comes in CDN$. They've effectively lost 30-40% of their net income on currency fluctuations alone.
January 25, 2016, 3:00 pmPeabody:
This was stated as a major cause for why Quebec and Winnipeg lost their teams to American cities in the mid-90's, the USD was much stronger than the CDN.
January 25, 2016, 3:33 pmHenryBowman419:
Much of the reason that the Canadian dollar is weak at the moment is due to low petroleum prices. When petroleum prices were high several years ago, the Canadian dollar was nearly at par with the U.S. dollar. The Canadian dollar will remain weak as long as oil prices are low.
January 25, 2016, 5:18 pmjoshv:
Well, if every nation coordinates to multilaterally print money, it has the nice side effect of decreasing the effective size of everyone's debt. Alternatively you could raise taxes to pay down debt - but really, isn't this just the same thing?
January 25, 2016, 7:27 pmjdgalt:
For most of the 20th century, most countries in Latin America were funded by printing money. They had no other option -- the governments had already exhausted all the money their local banks could lend; foreign banks wouldn't lend to them; most businesses had already been driven underground, making it difficult to collect taxes; and of course, the vast majority of residents were dirt poor and would riot if denied their welfare checks. Result: inflation in the tens or even hundreds of percent PER DAY.
This is what happens to countries that go on deficit spending sprees and won't stop. It hasn't happened to the US since about 1790, primarily because our banking sector is ten times bigger than those of all the countries south of us put together.
But Congress has now borrowed so much that as soon as the market interest rate gets above about 5%, interest on the debt alone will be impossible for the government to pay except by printing money. (Raising taxes won't help because our tax rates are already above the hump on the Laffer curve.)
Thank President Obama for the banana republic we're about to become. And stay for the foreseeable future, because there will never be an IMF or World Bank big enough to bail out the United States.
The Euro countries are in the same boat. (And it'll be interesting to see which rich ones try to wriggle out of it by quitting the EU before the collapse.)
January 25, 2016, 9:24 pmRon H.:
mlhouse
"... the only way that deficit can be "paid back" is to run a trade surplus sometime in the future."
Nonsense. I have run a trade deficit with my local supermarket for most of my life. I don't expect that will ever change. They will never buy more from me than I buy from them.
January 26, 2016, 1:57 amMatthew Slyfield:
"Thank President Obama for the banana republic we're about to become.
And stay for the foreseeable future, because there will never be an IMF
or World Bank big enough to bail out the United States."
Sorry, but Obama can't shoulder all the blame for this. Congress also has a good share of the blame. And not just this congress. The roots of this problem go all the way back to FDR and the New Deal.
January 26, 2016, 7:29 ammlhouse:
Maybe this analogy would work if you were a foreign country and issued your own, unique currency. Then the grocery store would end up with lots of RonH money. The only thing they can do with RonH money is to buy RonH goods and services. Eventually they would have to run a trade deficit with RonH for those transactions to have any real value to them.
January 26, 2016, 8:24 amDaveK:
The grocery stores have been hiding the inflation of fresh produce prices for years. They did this by changing from bulk pricing (by the pound), to unit pricing (price per piece). It seemed like almost overnight that the price of green peppers went from around $0.68 per pound to something like $0.68 apiece. Considering the size of a typical green pepper, that was a price jump of at least 300%. For those of us who mostly prepare their own meals from scratch, that has been a huge increase in our costs. That price inflation has been more subdued for prepared foods, since the cost of ingredients is mostly low compared to processing and distribution costs.
Our government keeps changing its price indexes to ensure that inflation is hidden, and so they don't have to increase benefits that are tied to an inflation index. At the same time they continue devaluing our dollar, so eventually that rather large and ugly chicken will come home to roost. It's gonna' be ugly when that happens.
January 26, 2016, 9:42 amMike Powers:
I love that "insist", as though it's the height of entitled buffonery to want fresh fruits and vegetables.
January 26, 2016, 10:09 amAndrew_M_Garland:
http://www.cato.org/publications/commentary/truth-about-trade-deficits-jobs
=== ===
[edited] Critics have an overly narrow view of trade. A trade deficit doesn’t mean that dollars flowing abroad just disappear. They quickly return to the United States. If they are not used to buy our goods and services (our exports), they are used to buy American assets — Treasury bills, corporate stock and bonds, real estate, and bank deposits. [Even holding US currency is a form of capital investment to be used later to buy something.]
America’s trade deficit is always and almost exactly offset by a foreign investment surplus. The net surplus of foreign investment into the U.S. each year keeps long-term interest rates down, prevents the crowding out of private investment by government borrowing, and promotes job creation through direct investment in U.S. factories and businesses.
=== ===
Some people love the idea of having dollars rather than "sending them abroad" to buy Chinese made sweaters. Personally, I like inexpensive, quality sweaters when I can find them. Those people can cheer up, because Chinese investments in US property and capital goods provides dollars for the locals to spend, rather than being tied up in capital goods.
January 26, 2016, 11:56 amRon H.:
Actually, RonH money is widely recognized and accepted as a medium of exchange worldwide. My grocer's employees accept it in exchange for their labor, and spend it on food, rent, clothes, transportation, and every other thing they need. In this way, RonH money passes from hand to hand in exchange for goods and services until it eventually returns in Ron H's paycheck. The cosmos is in balance once again. The fact that I don't have a balance of *trade* with my grocer doesn't matter at all.
In addition to trade in goods and services, anyone holding RonH money could invest it in RonH Enterprises which would also level the balance of payments.
http://www.econlib.org/library/Enc/BalanceofPayments.html
Without using a medium of exchange I would have to work directly for
January 26, 2016, 12:27 pmmy grocer to buy the things I want - work for food - or directly trade
something my grocer wanted. A really awkward arrangement.
mlhouse:
But in the end, the only thing they can buy with RonH money is RonH goods and services.
So, they can trade RonH money for Euros or Yen if they want to buy products from Europe or Japan. But the "end user" of RonH money needs to purchase RonH goods and services. If ROnH has nothing of value to trade, then RonH would not be able to do any transactions.
So, again the point, if you run a trade surplus over time period t, you must run a trade deficit over a different time period.
Otherwise, if the grocery store took in RonH money but never used it to buy RonH goods and services, all they got for their real products is pieces of paper or electronic debits. Eventually they will catch on that they need something tangible in return.
January 26, 2016, 12:32 pmRon H.:
"So, they can trade RonH money for Euros or Yen if they want to buy
products from Europe or Japan.
That's just one more exchange in the series of exchanges that will result in a balance of payments. It is the actual values that are exchanged that matter, not the particular medium of exchange. (RHB, Yen, Euro) as long as they are recognized and accepted by the trading partners.
Every individual transaction is complete and balanced. I trade my skilled labor to my employer for RHBs. I then exchange those RHBs for groceries and other stuff I want. My grocer exchanges RHBs for wholesale goods, building rent, utilities, employees labor, and, hopefully, profit for the owners of the business. (stockholders) Eventually all those transactions result in money being spent with my employer, who can continue to pay me for my labor. Balance of trade = 0 in this case.
In this limited example, holders of RHBs could alternately purchase shares in the company that employs me, or they could buy Ron H Treasury bills, or they could buy a factory from Ron H., thus affecting a balance of payments. Did you follow the link I gave you?
It doesn't matter if all these exchanges occur in my city, my state, my country, or anywhere worldwide. The result is the same.
"But the "end user" of RonH money needs to purchase RonH goods and services. If ROnH has nothing of value to trade, then RonH would not be able to do any transactions.
So, again the point, if you run a trade surplus over time period t, you must run a trade deficit over a different time period."
Read the first paragraph of Andrew_M_Garland's quote and follow his link for a really clear explanation of the balance of trade and balance of payments.
"Oherwise,
if the grocery store took in RonH money but never used it to buy RonH
goods and services, all they got for their real products is pieces of
paper or electronic debits. Eventually they will catch on that they
need something tangible in return."
Yes, it would be great if those to whom I wrote checks never cashed them, but that doesn't seem to happen.
That "something tangible", besides goods and services could be assets such as real estate, factories, equities, and debt instruments such as US treasuries. The balance of payments must equal zero, or we have gotten the goods and services free.
January 26, 2016, 3:12 pmRon H.:
Sorry about the extra italics. Hopefully my comment is readable.
January 26, 2016, 3:13 pmmlhouse:
I'm not sure if you are intentionally missing the point or not.
When you buy something from someone, lets say a television set, you give them "money" and they give you the television set. Lets look at the "complete and balanced" transaction. You have a fucking television set. The other party has a piece of paper or an electronic blip that says they have money.
You have something of value. They have something of value too BUT ONLY if they someday in the future use the pieces of paper or electronic blip to buy something tangible. That is the only value that money has.
So, China running a trade surplus with the United States takes dollars, converts them to yuan, and the yuan is used to buy Chinese products. The Chinese, through these exchanges, accumulates a lot of US dollars from the exchange. THey have pieces of paper or electronic debits. We have Chinese made products.
But, the only value that the dollars the Chinese accumulates have is to one day in the future buy US products or services. TO balance a trade surplus you must run a trade deficit sometime in the future. Otherwise, you are the sucker.
January 26, 2016, 3:34 pmRon H.:
Have you read either my link or the one provided by Andrew_M_Garland? You are ignoring a big piece of the real world accounting by focusing only on the balance of trade, which as only a part of the balance of payments. As I've already explained, besides exchanging money for goods and services, a holder of dollars can buy physical or financial assets in the country issuing the dollars - or Yuan, or RHBs, or whatever form of currency you prefer.
Unless and until you read one or both of those explanations of the balance of payments, and understand how the balance of trade works within that larger picture, we can't continue this discussion. Because money as capital can be used in exchange for assets, it is NOT necessary that dollars held by people in other countries be exchanged for goods and services.
If your only point is that money is of value because it represents goods and services, then there's no disagreement, but that's a trivial point.
" TO balance a trade surplus you must run a trade deficit sometime in the future. Otherwise, you are the sucker."
No, that is not correct. Read the linked articles.
January 26, 2016, 5:09 pmmlhouse:
It is absolutely true although somewhere above I wrote that I am using "trade deficit" rather loosely and fully realize that capital accounts balances are important too.
The fact of the matter is that a huge percentage of the dollars that the Chinese received from these surpluses went into United States Treasury obligations. Again, they get a piece of paper. That paper has "value" but in the end it must be converted into something "real".
This is NOT a trivial point. It is totally important in understanding the true nature of a "trade deficit". Again, I will trade pieces of paper or electronic debits for televisions, consumer products, and all kinds of Chines produced toys forever. And the second point is also non-trivial. From an international perspective a nation's currency has only one basic function: it is used to buy goods and services from that nation.
Again, if your nation is RonH and we do a trade were I give you groceries and you give me RonH currency, the only thing your currency is good for is to buy goods and services in RonH. I can accumulate billions of RonH currency. I might find some other parties that are willing to trade some other currency for RonH currency. But they would do that only with the ultimate result of buying goods and services in RonH. Maybe, since I have so much RonH currency you would be interested in subdividing your land holdings or selling me your used automobile as capital purchases. But, again, my RonH currency can only buy goods and products in RonH, capital or otherwise.
Again, this is non-trivial and the addition of capital account balances really does not change the dynamics. If you acquire another nation's currency from trade surpluses ultimately that currency is going to have to create a trade (capital or otherwise) trade surplus with that nation. No iffs, ands or buts about it.
In other words, a trade deficit cannot last forever.
January 26, 2016, 5:41 pmRon H.:
You didn't read the linked articles, did you.
Do you understand that the trade deficit/surplus in goods and services is an exact mirror image of the capital account deficit surplus?
Your claim that a trade surplus is necessary eventually in order to offset a trade deficit is as false as saying a capitol surplus must eventually be offset with a capital deficit. The trade account and the capital account are always equal and opposite by definition. It is an accounting identity.
http://4.bp.blogspot.com/-0-rs65ADYpk/T91GC7nNqyI/AAAAAAAAS-U/wIQNgU04XUM/s1600/bp.jpg
For example if I am a Japanese automaker with a trade surplus with US auto buyers, I don't need to import goods and services from the US to offset that surplus. I can buy land and build a factory in the US to be closer to my largest market. My balance of payments is zero.
January 26, 2016, 7:56 pmSteven Aldridge:
Zerohedge is my favorite web site, they really peel back the layers, sometimes they exaggerate but more often than not are on the mark.
What portion of the CPI is rent and medical related costs? Probably well below their percentage of the economy.
January 26, 2016, 8:14 pmmlhouse:
Again, you keep stating nothing of significance. If you get "net cash" in the transaction, and lets say you hold that cash in bonds, you have traded real goods for paper or electronic debits. THE ONLY THING YOU CAN DO WITH THAT CASH IN THE LONG RUN IS TO BUY U.S. PRODUCTS or SERVICES. In the words, you must run a deficit in trade. You have to buy software, communication equipment, agricultural products, capital goods, land, buildings. That is the only underlying international value of a dollar, and the value of a dollar is based upon the demand for US goods and services.
Again, getting "cash" in a trade is of no value unless you eventually spend that cash in the other country.
If I am the Chinese and I sell you some televisions and you give me dollars in the currency exchange, those dollars have only value to someone that is interested in buying products from the US. Otherwise you just have a piece of paper that we can print as many zeros on that we want.
You gloss over this pretending that once the cash is exchanged the scenario ends.
January 26, 2016, 8:39 pmRon H.:
You don't understand the difference between goods and services, and assets, do you.
Your initial claim was that if you run a trade deficit with another nation you must later run an equal trade surplus to balance accounts between the 2 nations, and that's just plain wrong. In that sense a trade deficit has no more significance than a trade deficit between Michigan and Arizona, or my trade deficit with my grocer.
I give up. Ask someone you know who understands money and trade to explain this stuff to you.
January 27, 2016, 12:40 ammlhouse:
LOL....I guarantee I understand money and economics MUCH MORE THAN YOU DO.
First, look at your claim. An international trade deficit is much different than a "trade deficit" between Michigan and Arizona, or your trade deficit with your grocer. And that is because of the currency issues involved in the transaction.
By making your statement you simply reveal your ignorance.
Again, when you make an exchange with your grocer, assuming the grocer is in the same country, you exchange domestic currency. That exchange means that the transaction is over. THere is no sense in tracking "trade" surpluses because it means nothing economically.
On the international scale, however, trade surpluses and deficits are meaningful. The value of a currency on the international market is based upon the supply and demand of its products and services. Low demand for a country's products means low demand for its currency. The reason for this relationship is that to purchase the products and services of a country you need to acquire the currency of that nation from currency exchange.
Therefore, when a country runs a trade deficit that means that other nations have acquired more of its currency than what it will spend on goods and services. That is, when the US runs a trade deficit other nations acquire MORE dollars than they spend on US goods and services.
Most of the public, politicians, and media believe that a "trade surplus" is better than a trade deficit.
But, just as you showed that the trade and current account balances mirror each other, over the long run a trade surplus must be at least nominally balanced with a trade deficit because the only way that the currency that you acquire by running a trade surplus has any value is to buy goods and services of that nation. If all you want it paper or zeroes in your bank account, that can be easily supplied by a printing press or other means of expanding the money supply. But eventually the demand for dollars will decline to the point that the Chinese or other countries will want to use those dollar accumulations to purchase US goods and services.
One further note, the distinction between capital and non-durable goods is meaningless. With the dollar accumulation eventually the surplus nation must buy something from the United States, whether that is communications equipment, software, insurance or financial services, land or buildings. That is ultimately the only utility that dollars can provide.
January 27, 2016, 8:49 amgr8econ:
The CPI-U is meant to measure price changes for Urban consumers. Hence it only contains the stuff that households pay for directly. Shelter is 33.349% of household expenditures with rent being 7.321% and owners equivalent of rent being 23.334% Medical care commodities are 1.786% while Medical care services are 6.050% Spending on medical care is much higher for the overall economy since government and third parties pay for about 2/3 of the cost.
The CPI-U is a reasonable estimate of how price changes affect households. It does not measure price changes for the economy as a whole. For that you need the GDP Price Index also known as the GDP deflator.
For details on CPI-U see http://www.bls.gov/news.release/cpi.t02.htm
January 27, 2016, 12:16 pmRon H.:
"LOL....I guarantee I understand money and economics MUCH MORE THAN YOU DO."
Heh! If that were true, you would write better comments, using correct economic terminology and concepts, and
we wouldn't be having this conversation.
OK, I lied. I didn't give up.
"First, look at your claim. An international trade deficit is much different than a "trade deficit" between Michigan and Arizona, or your trade deficit with your grocer. And that is because of the currency issues involved in the transaction."
Those transactions are exactly alike EXCEPT for he possible exchanges of currency, which makes no more difference at any given moment than conversion of inches to centimeters. The value is the same, just expressed in different units. Yes, I'm aware exchange rates fluctuate, that's why I wrote "at any given moment", which is how transactions occur these days.
Would international and intra-national trade be different if both countries used the same currency? If not, WTF difference does geography and political boundaries make? Trade between countries is no different than trade between states. You'll have to explain why converting units of currency changes the amount of value exchanged between political entities.
In actual fact, since we are talking about deficits and surpluses, you won't even have to worry about exchange rates because in the case of China and the US, payments to Chinese businesses that become capital surpluses - the mirror image of the deficit in goods and services - almost certainly take the form of deposits in US banks in dollars, a form of capital, and from which capital investments are made. Balance of payments is preserved.
"Again, when you make an exchange with your grocer, assuming the grocer is in the same country, you exchange domestic currency. That exchange means that the transaction is over. There is no sense in tracking "trade" surpluses because it means nothing economically."
In other words, it means exactly as much as a trade deficit means. And again, the money in dollars or Yuan or any other currency is merely a medium of exchange. Changing between them doesn't change the actual values exchanged - My labor for groceries. I could exchange dollars for a Grocery Bucks gift card - a currency readily accepted at my local store, and nothing else would change.
"On the international scale, however, trade surpluses and deficits are meaningful."
Only if you also think it's important to track trade balances among US states. It's likely that Arizona runs a constant trade deficit with Michigan. Do you worry about that?
"The value of a currency on the international market is based upon the supply and demand of its products and services."
Actually, the value of a currency on the international market is based on subjective judgements about it's relative soundness compared to other currencies, and subjective judgements about the potential for economic growth in the country issuing that currency.
"Low demand for a country's products means low demand for its currency. The reason for this relationship is that to purchase the products and services of a country you need to acquire the currency of that nation from currency exchange."
Just like I must exchange dollars for tickets if I wish to enjoy a ride or attraction at the carnival. Big deal. My opportunity cost for riding the roller coaster is the same whether measured in dollars, tickets, or any other currency.
When you picture dollars being exchanged for Yuan, where do you suppose the Yuan come from and where do the dollars go?
"Therefore, when a country runs a trade deficit that means that other nations have acquired more of its currency than what it will spend on goods and services. That is, when the US runs a trade deficit other nations acquire MORE dollars than they spend on US goods and services."
Which is, by definition, a capital surplus.
"Most of the public, politicians, and media believe that a "trade surplus" is better than a trade deficit."
That's because they don't understand economics, and politicians like to bluster nonsensically about countries winning and losing in international trade. Trump comes to mind.
Goods and services we import are things we consume. Things weexport" are things we must give up to pay for those imports. The less we must pay for what we consume, the better off we are. The more groceries I can get in exchange for a given amount my labor, the better off I am. Imports = positive. Exports = negative from the viewpoint of consumers, which is all of us.
"But, just as you showed that the trade and current account balances mirror each other, over the long run a trade surplus must be at least nominally balanced with a trade deficit because the only way that the currency that you acquire by running a trade surplus has any value is to buy goods and services of that nation. "
I can invest in capital assets in that country instead of buying goods and services. If you consider capital separately from goods and services you must accept normal, universally accepted accounting for the balance of payments. If you wish to include capital assets along with goods and services, as you seem to be trying to do, then "what is bought is what is paid for". There is no deficit or surplus.
Pick one: You can't have it both ways.
"One further note, the distinction between capital and non-durable goods is meaningless. With the dollar accumulation eventually the surplus nation must buy something from the United States, whether that is communications equipment, software, insurance or financial services, land or buildings. That is ultimately the only utility that dollars can provide."
In which case there can be no deficit or surplus. What is exchanged = what is exchanged.
January 27, 2016, 5:55 pmmlhouse:
THe more you keep babbling the more you dig yourself a hole.
1. International trade is not simply a "conversion" of yen to dollars, or Euro to Yuan like inches to centimeters. They are not the same thing just expressed in different units. Unlike inches, there is supply and demand dynamics to the different currency and you must possess the currency of the trade in one way or the other.
2 This is a laugher. Seriously, "subjective judgements about it's relative soundness compared to other currencies". The value of a nation's currency is based on the supply and demand for that currency, just like any other commodity. The main driver of demand for a dollar is the relative amount of trade being done in dollars, or yen, or yuan. Lots of dollar trade, more demand and a higher value of the dollar relative to other currency. Lower amount of trade, less value. End of story.
3. Capital assets. Goods and services. It does not matter if the good (or service) is a capital or non-capital good. If you own dollars, the only thing you can do with those dollars is buy US products. That is the entire point. Running a trade surplus (with the US) means you accumulate dollars. Eventually those dollars must be used to buy the goods and services in the United States. For every "deficit" someday a surplus must exist.
Keep at it. I am sure you will get something right eventually.
January 28, 2016, 4:17 amRon H.:
I see you are determine to remain ignorant of several important economic concepts, including the function of money, even though you correctly acknowledge the nature of money as a commodity. You refuse to acknowledge the widely accepted accounting device known as the 'balance of payments', instead clinging to your version of one of the components of balance of trade.
And you remain confused about the difference between an individual actor or groups of actors, and political entities that have no capacity to act as economic actors. Countries don't trade, people trade. For you, apparently, something magical and different happens when an exchange between economic actors occurs across an artificial line called an 'international border', but it just ain't so. Step back a little bit and see the bigger picture.
I can see that there is no hope of this discussion ever becoming useful, so I will quit wasting my time with you, and I really will give up. I can only suggest that you get some help with this subject to improve your understanding, and if your knowledge of economics is the product of formal education for which you paid actual money, I suggest you ask for a refund, as you didn't get what you paid for.
January 28, 2016, 2:25 pm