Making Sense of the Dollar

Exposing Dangerous Myths about Trade and Foreign Exchange

51IX7sbQHwL._SY291_BO1,204,203,200_QL40_ Author Marc Chandler
Isbn 9781576603215
File size 1MB
Year 2009
Pages 240
Language English
File format PDF
Category Economics

Book Description:

However, I highly recommend this book to other students thanks to its legibility. Understanding the concepts in this book will enable you to challenge the widely-taught class materials in international trade and elevate yourself above the rest.

This book takes a fresh look at the way that both investors and policy makers should look at global flows in aggregate to determine whether imbalances are forming. The historical accounting standards for global trade has been the trade account and this has been emergent because they were once the dominating flow relative to capital good flows. The strength of an economy is often looked at in terms of strength of trade position and it is argued that one needs to reflect on the health of an economy in a much deeper and more integrated manner. In particular one needs to focus on the capital flows and the ownership of the means of production on a global basis by the public to see whether there are imbalances as global supply chains by US companies have become much more important and vastly reduce the significance of measures like the trade account.

I think the perspective is a very important one. Essentially the author argues that if one compares the aggregate trade volumes of US corporates then it changes ones perspectve on the trade account because the US sales volumes and the global supply chains that create them accrue profits to US corporates that if re-patriated vs being re-invested would vastly change the perspective that the US is losing dollars abroad (as US companies are accruing foreign currencies simultaneously to dollar accumulation but they go unaccounted for). Given the global sales volumes by US companies, there can be no doubt that the trade account does not measure the aggregate change in ownership capital goods of one nation relative to another (which is what we are really trying to measure). The simplified argument goes as follows, assume there are two countries, A and B, with 2 assets for each country, a bond and a stock. B has a trading surplus with A that gets reinvested in bonds but A owns 1/2 of the businesses in B- which is better off? The author argues that A which represents the US is actually better off (not due to this example, but thats the way he sees it). But that does not follow naturally. If there is a global slowdown, B becomes the creditor and the capital gains from the debt could exceed the profits from offshore subsidiaries, foreigners could buy more US equities to embed a recursive argument into the dynamics (as foreigners would own part of the offshore/for them local branches of US subsidiaries, and thus the capital gains would accrue to themselves) etc... It could be the case that summing over the profit of foreign subs and their ownership by the american public the trade becomes balanced or even surplus, but there is no analysis done on this, it is more of an assumption.

THis book takes a fresh look at the way in which global accounting should and could be considered. But there are a LOT of conclusions to this that also need to be explored in real depth, to name a few, if capital gains need to be added to trade deficit, it brings forward the distribution of ownership and its importance. People can be mobile too, if one looks at the US market and says that US companies have a surplus account then what makes a company US? Its share registrar might be currently US residents, but if tax policies change, so could the citizens especially those with the largest capital holdings. The distribution of capital in the US will become of hightened importance, the distribution of profits to labour and capital abroad will be of hightened importance (in the US, under the presumption US companies are wholly owned by US citizens it would not be as its either dividends to labor or owners of capital), the investment preferences of foreigners toward their dollar holdings etc. I recommend reading this as it brings up a very important perspective that should be explored, but a lot more data needs to be collected to draw conclusions about where the US economy stands. At its height, consumption in the US was surely not 71% of GDP because of knowledge of foreign capital gains, it was on bad assumptions about the way their housing assets were appreciating. This brings another question to mind which is, if people are in a surplus position summing over trade and capital gains with trade being negative and capital gainst being positive in a risky environment, is that something to be satisfied with? I am not sure, clearly the risk could turn those fortunes around quite quickly (consider offshore nationalization of US companies as extreme example). The arguments presented makes one question very seriously what the dollar is worth, what it affords its holders and what drives its fundamental position in a global economy. I recommend this book as it describes new perspectives, but conclusive relative position views are not demonstrated, nor should they be, before a lot more work has been done on this approach.


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