thumperton said:
what would this mean in practical terms? would it crash the American economy? Cause a depression?
1. a lower standard of living for all americans
2. yes
3. yes
Continued huge deficits in foreign trade, and in our domestic spending, will cause inflation, and with the US dollar not being accepted as payment and a collapse in its value.
Any products, materials, goods, or services purchased from other countries (oil, gasoline, food, clothes, electronics, computers, televisions, tools, appliances, toys, etc) will have great increases in price, causing us to buy much less from other countries. Although products made in USA will also go up in price, foreign made goods will go up in price many times over.
Becuse foreign made products will become very expensive, we will buy less, and other countries that sell goods to the US will no longer have a market for their goods causing their economies to decline.
It will probably result in a greater depression in other countries, since whoever now is supplying products and manufactured goods will be the most effected when we stop buying, and since very few goods are manufactured in the USA, not many manufacturing jobs remain to be lost. Countries that used to sell a lot of goods to the USA will have severe recession and job loss because American demand for foreign goods will end.
-----------------------------------------------
Falling Dollar, Rising Debt
By
Jeff Faux
Our current account deficit now runs about $400 billion a year, and the Goldman Sachs number crunchers estimate that just to cut that in half, the dollar would have to fall an "astonishing" 43 percent against the currencies of countries we trade with.
A dollar devaluation by anything near that amount -- unless we arrange to make it happen gradually, over a very long period of time -- would drop us into a deep and prolonged
recession.
Interest rates would skyrocket as investors demanded steep premiums to compensate for the risk that the value of dollar-denominated bonds might decline further. At the same time,
prices would rise in every domestic market -- from apparel to computers -- that's now dominated by imports. Indeed, many products (TVs, for example) are no longer produced here at all. Thus, even with a dramatically lower dollar, it would take at least a decade to expand U.S. industrial capacity enough to rebalance the trade deficit. And that's not all. Any reduction in the U.S. trade deficit means a reduction in the rest of the world's trade surplus with us. Given that economic growth in many countries now depends on sales to the U.S. market, it's hard to imagine that they would sit still for such a switch.