Промышленный лизинг Промышленный лизинг  Методички 

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worth about $2.50. What I didnt realize then was that currency prices were fixed by agreement between governments. Thus the $2.50 was a government-mandated price, not a market price.

In 1944, governments decided that exchange rates were too important to be left to market irrationality. Economists put part of the blame for the Great Depression of the 1930s on wild fluctuations in the value of currencies. Toward the end of World War II, the major economic powers met in Bretton Woods and fixed the value of their currencies. The governments wanted to make sure that the excesses that led to global economic collapse would not reappear.1

In 1971, Richard Nixon devalued the dollar and destroyed the Bretton Woods pact. Freed from its fixed price, the dollar was free to fluctuate between irrationally low and high values, and to create current account imbalances. As seen in Figure 6.1, from the 1980s until now the dollars value has led to large and growing U.S. current account deficits.

Current account deficits are a form of borrowing. Theres nothing inherently evil about borrowing in general nor in running a current account deficit. College students borrow to further their education, companies borrow to expand factories, and countries borrow to undertake projects that may take years to repay.

For example, the Hoover Dam outside Las Vegas was built in the 1930s and now generates very low cost hydroelectric power. Only a curmudgeon would argue against borrowing for the Hoover Dam on financial grounds (there are, of course, legitimate environmental arguments against dams). Borrowing to develop something is often better than the alternative of no borrowing and no development.

While IOUs are nice, and loans can be good, eventually the piper must be paid. Notice that Wimpy in the Popeye cartoon says, Id gladly pay you Tuesday for a hamburger today. He doesnt say Id gladly eat a hamburger on Tuesday for a hamburger today.

Neither a borrower nor a lender be says Polonius to his son Laertes in Hamlet. While this advice appears sound, many scholars think Shakespeare wrote it as an example of a father droning on with obvious and



unsolicited comments. In the case of borrowing, the advice is essentially empty. Debts must be repaid, so borrowing and lending are just different phases, not permanent states. It is impossible to go through life as a borrower (although I suppose Cheapskate did).

The implications are clear. Countries with current account deficits must at some point swing to surplus. Thus the United States, currently the worlds biggest net consumer from other countries, will become a net producer. In the coming years we will be discussing the size of the U.S. current account surplus. Because the U.S. current account deficit is huge, the inevitable adjustment to surplus will have profound effects on the worlds economy and on individuals investments. Lets look at how this is likely to play out and the implications.

A Euro for Your Thoughts

In November 2002 my wife and I visited Milan. Walking along the famous shopping street of Via Montenapolean, Barbara spotted a Bottega Veneta purse for the price of 700 euros. At the time, one dollar bought just over one euro so this purse was being offered at the price of about $680.

Both Barbara and I found this $680 purse price to be ridiculous but for different reasons. Dont you realize that I saw this same purse on sale in New York for over $800! she said. Biting my lip and suppressing my horror, I said, I think you should snap it up. On our way back from Europe we flew out of the airport in Cologne. A young German woman about 23 years old was working the customs desk. She said, You have declared an item worth 700 euros; may I see it? I showed her the purse, and she gasped, Thats it? Yes, isnt it a ridiculous value? I replied. We returned to the United States with Barbaras beautiful bargain, thereby contributing $680 to the U.S. current account deficit.

Were we to go to Europe in 2004 we would find that purses costing 700 euros translate to a dollar-cost of $850. Costs to U.S. consumers



have increased dramatically because the dollar has lost value relative to the euro. Currency devaluations change peoples purchasing decisions. Add up enough 700 euro purses not purchased, throw in a few Mercedes that Americans dont buy, and pretty soon a falling dollar leads to a smaller current account deficit.

A current account deficit means that a country is consuming more than it is producing. A simple way to cut back is to raise the price of consumption. This can be accomplished almost magically by changing the value of the currency. Against the euro, the U.S. dollar has lost almost a third of its value over the last few years. As compared to the Japanese yen, the U.S. dollar has been in decline for decades. Thus without any change in dollar wealth, U.S. consumers are now much poorer than we were a few years ago. This weakening of the dollar works to make us consume less from abroad. It also makes the American products cheaper, thus boosting purchases by foreigners.

A cheaper dollar decreases imports and increases exports, reducing the current account deficit.

Real and Nominal Exchange Rates

While exchange rates are a bit abstract for many people, for others they are of visceral importance. I learned this during a 1992 visit to Victoria Falls. I was staying in Zimbabwe across the Zambezi River from Zambia (Zimbabwe used to be called Rhodesia, and Zambia was Northern Rhodesia). One day I rented a bicycle and crossed a bridge into Zambia, intending to peddle a few miles to the museum in the town of Livingstone.

Two interesting things happened on the road to Livingstone. First, my bicycle got a flat tire. There was no place to fix the tire, so I decided to ride on the metal rim and pay the owner for any consequent damages. This meant that my already slow pace in the hot sun was further reduced.

Second, a group of Zambians descended on me. The Zambians were hungry to get their hands on some Zimbabwean currency. I found this



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