Thursday, September 16, 2010

Japan Central Bank intervenes to prop dollar

Japan is wasting its money trying to push the yen down as it is in effect trying to push the dollar up. The dollar is going into long term decline as US consumption gets extra competition from the rest of the world.
It used to be said that if the US coughed the rest of the world caught a cold.
Not any more. The GDP of the whole world is $58.15 trillion (2009 est.), the US was $14.14 trillion (2009 est.).
It doesnt take a genius to figure out the US cannot keep consuming 45% of the worlds output.
This adjustment in US consumption is the long and short term problem that faces the US. The pressure on US consumption will really happen when Chinese workers wages and the renminbi's value increases as is happening now.
More cars were sold in China last year then the US.

It is possible that the US could maintain the 45% consumption rate by reducing the GDP of the rest of the world somehow. Maybe a new really destructive war? Iran maybe? Although I believe the rest of the world has absolutely no appetite for this option, It should be remembered that crumbling empires are the most dangerous.

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