Hm, well, I'm not sure how to address the FX comment without going into the extensive literature of macro-economic effects of currency reserve imbalances and the supply and demand of currencies related to underlying interest rates.. What I suppose we can simply agree upon is that in the short-term exchange rates can have a massive effect on an economy?
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Originally Posted by TinyRedLeaf
When you're looking at city-state economies like Singapore or Hong Kong's, I don't see how we have any choice but to be export-oriented. Our domestic economies are simply too small to sustain long-term economic growth.
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I was just having a conversation with someone about this recently in relation to "trade-hubs" like Singapore and tying it back to jobs like mine in "Professional Services" -- this is my speculation, but much of Singapore's balance of trade showing up as positive is "value-added" goods and services that I believe are consumed domestically. Primarily services. This shows up as an ongoing positive balance of trade. What I think is happening is value capture through the facilitation of the international trade between the two counter-parties with the export component actually being "domestic" GDP production via services. I don't think I explained it right. Here's my example:
Asian Company A: Ships a tanker full of shoes to Singapore that cost $X to produce and needs to earn a profit $Y
Singapore Trade Finance Company / Distribution Brokerage / Etc: Facilitates sale/purchase transaction, sometimes simply through LCs or a brokered transaction or some other means, including at times taking possession and re-sale (albeit likely only for a day or two) -- anyways, title and ownership transfers -- this adds costs of $Z
European Company B: Ultimate buyer/distributor of shoes wants to buy those shoes and pays $X+$Y+$Z
Now, should $Z be really classified as an export? Services can be exported, I agree, but all of these transactions could very well have occurred on the shores of Singapore itself. My firm for example has all of its trade finance offices based in Singapore. Most international trading companies will likely also have their offices in Singapore. Staffed by people that live in Singapore. What about the "export $$$" that were calculated due to taking possession of trade product and reselling to capture the spread .. is that really export $$$ or domestically consumed services?
Reason I thought about it this way is as someone in financial services, I like to think of myself as someone that adds value most of the time, but there are other times where my job is to collect "Economic Rent" because of structural and bureaucratic inefficiencies. Facilitating trade is in some ways the same.
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Originally Posted by TinyRedLeaf
I broadly agree with you in principle. In practice, however, it's very difficult to balance savings and debt. There are a huge range of factors involved, from taxation to fiscal policy to social-political expectations that have to be met. In the end, between savings and debt, I would much rather have more savings than more debt, and I will never understand nor wholeheartedly accept the Western addiction to credit-driven consumption growth.
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Well, my simplistic response to that is that money-multipliers and the financial system = one side's savings is another side's debt. You save and put your money into the bank. The bank can only exist by generating a return on that savings. That return is primarily due to lending that money out. We're talking about the velocity of capital. I think like trade, savings and debt will eventually need to be balanced out, which means tough times coming for the U.S. -- which is fine to me because the country has been overspending and therefore financing the growth of other countries around the world.
Pardon the rambling, racing off to a meeting but thought I'd puke out some thoughts.
Outcome remains uncertain