Conference nyoss1::market_investing

>    It occurs to me that since the US is a debtor nation that a good
>    chunk of our $4 trillion in debt must be held by foreign investors.
>    Since we are paying them back with devalued dollars they must be
>    loosing money as the currency drops in value.

	What makes you think this?

	Couldn't you have been lent X,000 sterling at Y% interest, and pay
	interest back in sterling?

	Heather

>    While this may reduce the trade deficit, it will also reduce our
>    standard of living since we won't be able to import as much.
    
    It is common reasoning that a cheaper dollar means a lower deficit.
    The evidence of history suggests otherwise.  The U.S. trade deficit
    with Japan has remained within a narrow range while the dollar dropped
    in half against the Yen in the past 6 years.
    
    If trashing one's own currency really contributed to prosperity,
    Argentina, Peru and Brazil would be economic powerhouses.
    
>    Since we are paying them back with devalued dollars they must be
>    loosing money as the currency drops in value.

    Since most U.S. debt is denominated in dollars this is true, though
    creditors can to some extent hedge in currency markets.  The principal
    negative is in future debt issues -- foreign buyers react to antici-
    pated currency devaulations by demanding higher interest rates.
    
>    Another interesting question is how does a devalue dollar affect
>    investing abroad.
    
    It encourages it, assuming the goverment continues to permit it.
    Those German bonds become doubly valuable as your interest payments,
    constant in Marks, buy more dollars.
    
      John

    
    A decline in the real U.S. exchange rate should improve
    competitiveness, but it also increases the cost of imports, which creates
    additional inflation, reduces real income, reduces demand for goods and
    services, and reduces production.
    
    A depreciation in the dollar makes imports more expensive in terms of
    the dollar, thereby widening the trade balance deficit (U.S. exports are
    usually denominated in dollars).  
    
    The short run effect is to import inflation, reduce real wealth, and to
    depress the GDP.
    
    The long run effect is to increase foreign sales and stimulate the
    domestic economy...  unless the economy is so slow to improve that the
    trade balance worsens leading to further currency depreciation leading
    to larger trade imbalances leading to....   
    
    The equity markets may react to the long term positive effect or to the
    short term negative effect.

    Declines in the exchange rate don't affect all exports equally:
    if the creation of an export item involves only domestic inputs
    (e.g. lumber), then the international market price for that export
    item is lower and more of it will sell.  But if the creation of
    the item involves foreign inputs (e.g. imported memory chips in
    PCs), then the international market price will not drop as much.
    The proportion is clearly connected to the fraction of local cost.
    
    Further, the labor input cost isn't immune to changes--since the
    workers buy goods with foreign components they will insist on pay
    increases to compensate.
    
    Historically, lowering the exchange rate to improve trade doesn't
    work very well.
    
    		-John Bishop

    Re: .1
    
    As someone else said in another reply.  They bought T-bills which
    are denominated in dollars.  Historically, the dollar was a great
    place to keep your money.  I guess this devaluation proves that
    past performance isn't an indicator of future performance.
    
    Re: The Trade imbalance with Japan.
    
    I've heard the trade deficit with Japan has stayed stable becuase
    Japanese companies have been willing to cut profits to maintain
    market share.
    
    Martin
          

	The dollar set another new multi-year high against the Yen
	today, at 121 Yen to the dollar.