Isn't that what got us all into this pickle in the first place?

We bought oodles from the Japanese and Koreans and Chinese and they turned around and converted the excess dollars they were holding into Treasury bonds, artificially depressing US interest rates... which led investors to seek out more profitable AAA-rated investment vehicles... like tranches of subprime mortgages.

We all know now how well that worked.

This is good advice?

Absolutely we should buy foreign, if they make a better product. Thank God for the Japanese -- it is mostly because of them that automobiles have advanced past the 1965 Rambler.

The cycle you describe -- while not completely inaccurate -- has nothing to do with where the products we buy are made...instead, it has to do with the question of whether we are spending, or saving, and if we are spending, who is financing it. It is a bit rich for us to blame the foreigners who loaned us the dough for their...loaning us the dough.

Don't listen to this idiot - He's probably someone that has all of his money tied up in Asia or makes a living importing Asian junk.

And NO - Japanese cars are not better than American - this is a myth perpetuated by the technically ignorant.

Europe and Asia are completely dependent on American Consumer spending - we can't afford to keep them afloat.

The Chinese want our jobs and they want us to buy all of their stuff at the same time while not buying any of our stuff.

At least the Japanese were smart enough to realize that they had to invest in America if they wanted to keep us a loyal customers.

China and India are all for us - none for you.

It's time to renegotiate these lop-sided trade agreements.

The only people that should be unemployed are sellouts promote only foreign products and disparage American products

revrick:

We bought oodles from the Japanese and Koreans and Chinese and they turned around and converted the excess dollars they were holding into Treasury bonds, artificially depressing US interest rates

No, it was the Fed that artificially depressed interest rates.

revrick:

... which led investors to seek out more profitable AAA-rated investment vehicles... like tranches of subprime mortgages.

Oh please. Investors put money into CDO bonds because they were paying higher interest rates and because they were deemed safe because of their fraudulent AAA ratings, not because of what Treasuries were doing. This is what a certain class of investors do - look for profitable and safe investments. If Treasuries paid out higher interest rates, the CDO bonds would have been 1 point higher. Why not? - they were scams anyway.

Do we hunker down and take care of our own?
Or do we make the broadest possible economic
moves (macroeconomy) to make the global system
work?
The answer may perhaps be in the middle. We can
no more ignore the rest of the globe, for now we are
part of the globe, than can we manage the global
system. I say we chicken out.

Freetrader,

Thanks for your reply. I have nothing against trade, but given the systemic and chronic trade deficit we've been running we clearly have a distorted market here. Econ 101 says that our interest rates ought to rise and our currency fall making our products more competitive to close the gap. That hasn't happened. We are living beyond our means and have been doing so since the 80's. The question is why.

The picture of one of those payday loan outfits keeps popping in my head and we get deeper in hock with each Toyota and flat screen TV.

Hooblublu,

I tend to be leery of ascribing motives to others, but I understand your frustration. Clearly, we're going to have to pay the piper... and it won't be pretty.

Claimsadjuster,

There is no way on God's green earth that the Feds could have pulled off an effective zero (or negative) interest rate if the world wasn't awash in cheap credit. If rates in the open market are soaring, the Treasury would have sold no bonds whatsoever by offering a lousy percent or two.

Many institutional investors and insurance companies are required by law to invest in AAA instruments, but they couldn't have survived buying Treasuries. A 1% return on investment doesn't cover their expenses let alone provide for long-term demands.

The CDOs were based on mathematical models that said the risk was almost zero, but they overlooked the possibility (inevitability?) that they'd all go into the toilet at once. Cf Taleb's Black Swan.

Apple444ed,

Rock -- Hard Place. Unwinding the debt will get ugly for sure. And there's no place to hide.

America has one of the world's highest standards of living thanks to trade, both internal and external. You can't even provide an example of how trade has 'harmed' us.

of our problem of overconsumption. I just don't think that it has anything to do with trade, in fact, trade benefits us by allowing us to comsume more for less. That said, there is some encouraging news that American savings rates are starting to rise as part of the crisis. It is simple math -- if the American savings rate, overall, is the same as the foreign savings rate, there won't be a trade deficit. Now trade deficits are not necessarily a bad thing in themselves (whereas, long term budget deficits probably are) over time you would hope to achieve some sort of balance.

the Fed can't mandate interest rates globally, although it can influence domestic lending rates. Foreign savings (by governments and individuals) created liquidity that flowed into the US to subsidize trade and fiscal deficits. The only way to hold down interest rates in a tight credit market (such as we are now in) is to print money and flood the world with cash, which will in the end depreciate the currency (which we are now doing).

The Fed can influence the rates of new Treasury bond issues by bidding for them against foreign interests. Since the bonds of various nations must compete against each other for buyers, that effectively forces a variation of the foreign rates too. Because we are such a large part of the world bond market, I suspect that the Fed is able to do that fairly effectively.

Phil,

I think you grossly overestimate the power of the Fed here... in the present situation. Under 'normal' conditions, perhaps so. But not so much in the late 90's and early 00's, when vast sums of cheap credit was sloshing around, looking for a place to go. Look at what's happening now. Central banks have injected trillions into the credit markets and the specter of deflation still lurks. Europe's y-o-y inflation was - 0.1%! We're almost there.

. . . or with other countries NOT buying American goods?