Monday, November 17, 2008

Declining Exports - Trouble

Brad Setser has an interesting piece on exports.

Rising fuel prices led to declining petrol imports. This led the trade deficit to narrow. Fear in credit markets has led to a flight to dollar denominated assets, which are seen as safer, increasing the value of the dollar. This has driving down oil prices and reduced exports.

Paul Krugman notes that:

Exports have been the one good thing about the US economic situation; in fact, the reason the economy didn’t fall off a cliff immediately when the housing bubble burst was that, for a while, export growth took up the slack.

What the nation needs is a weak dollar in order for exports to rise and imports to fall. Looks like that is not going to happen.

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