Another American Shortcoming

Imports surpass exports.rnThat has been our economic behavior and way of life for over 30 years. And, interestingly, it’s worked. Foreign countries are satisfied with our currency as payment for their depletable resources and manufactured materials.rnOur currency is still reliable to other countries…but for how long?rnHow long will China, Canada, Mexico, Japan, Germany, UK, Brazil, Taiwan, and the Netherlands hold faith in our paper commitment? Using their own discretionary judgments, they have all supported this $8 trillion trade deficit and not only have received our good-faith US dollar, but have also maintained them in lieu of replacing them for tangible resources or capital.rnWow…their faith lingers on the belief that the US dollar’s value will not decrease by more than the fiat currency’s profits. They are also reliant upon a destined good doer who will eventually reciprocate palpable goods in replacement of them.rnAre our trade deficit co-dependents within a period of introspection of their motivations behind the need for hoarding paper that could be losing its status as the world’s reserve currency? Maybe Washington’s recent cat and dog fight had something to do with it. It must be terrifying to know you have aggregated a substantial amount of another country’s currency and then you watch this unsophisticated spectacle on the part of that country’s supreme leaders. Furthermore, overseas shareholders are not being indemnified accordingly for the uncertainty accompanying the fiat currency.rnIs their reimbursement a futile one?rnAmerica’s deficit has escalated from: * 33 percent of GDP (1975) * 95 percent of GDP (2011) rnBudget deficits have ascended: * More than 8.8 percent of GDP (and assumed to reach a surplus medium of $1 trillion) rnThe budget deficit might be considerably more if interest rates ever increase from their rock-bottom status.rnThe debt owners are very aware of what is transpiring and yet, continue to hold these bonds that are being offered virtually zero return: * short term- 0.01 percent on 90 day notesrn * medium to long term- between 0.9 percent and 3.7 percent rnSomething got lost along the way because it really doesn’t add up… or is it because the Federal Reserve is doing something on the inside that is making the foreigners think there is interest somewhere. Something like maintaining demand high and yields low by acquiring unsold bonds…but all done with false pretense. Hmmm….rnAgain, we return to the question at hand: Will investors continue to hold bonds that offer such low returns and are full of empty promises? Would you?