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Comment by eru

10 days ago

> A current account deficit is a capital account surplus,

That's true.

> assets and exports compete in the balance of payments, an asset windfall kills exports by increasing the currency hurdle and embedded asset price.

They don't really have to compete with each other. It depends on what the central bank does (or doesn't do) about the exchange rate, for example.

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eru

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smallmancontrov  9 days ago

Weakening the dollar would make the export sector happy, but if you did enough of it to make the US export sector strong you would make assets unhappy. In fact, we have front row seats to this very lesson which appears to be even stronger in reality than it is in theory: we are already seeing yields rise despite a dollar that is still strong enough to crush exports.

Assets have had such a stranglehold over US politics for the last 50 years that if we ever actually run pro-export policy it won't be due to doomed self-promotion by exports (we even have a term for the pattern where this fails on first contact with tradeoffs: TACO) it will be because assets self-sabotage, implode, and exports fill the vacuum.

  • eru  8 days ago

    The exchange rate is a nominal phenomenon. Inflation adjusted interest rates and inflation adjusted asset values are a real phenomenon. They don't necessarily have much to do with each other.

    Germany and Singapore are two prominent historic examples of countries that export just fine despite a strong currency.

    Weakening your domestic currency has barely any impact on the real price of traded goods and commodities: they just price at the world market rate. The impact is felt for goods with sticky prices, chiefly labour. Weakening your currency is mostly a way to try and give everyone a wage cut. That can make your exports more competitive for a while. But it's not the only way to cut workers' wages. (And in general, later you seem to agree that giving ordinary people more real income is kind of the point of economics. So giving everyone a real wage cut seems a bit of a curious way to get there.)

    > we are already seeing yields rise despite a dollar that is still strong enough to crush exports.

    Rising yields fairly mechanically leads to a stronger dollar.

    Btw, you might like https://en.wikipedia.org/wiki/Lerner_symmetry_theorem

    The Lerner Symmetry Theorem suggests roughly that import tariffs are equivalent to export taxes; and export subsidies are equivalent to import subsidies.

    And the US is actually doing pretty well in exports, if you take into account that they are exporting not just goods but also services; and if you squint a bit, you can also see that Americans love to found new start-ups and new world beating companies and sell shares in them to the world. That's also a kind of export, but it shows up on the other side of the ledger for accounting reasons.

    Similarly, if you build an office building in Seattle and sell it to a foreigner, that also doesn't show up as an export for accounting reasons.