Well . . . World baad mein. . . I am sitting on a CGPA Time-Bomb. My exams start tomorrow; and am terribly short of reading . . so this post over I don' t hope to make any posts for the next 5 days (unless exams are that frustrating ki post maarna pade) :P
OK now turning to the world . . as a part of Global Economics I learnt that
a. International Trade is good for all countries and the world as a whole
b. Any trade barrier may sound good for producers in an economy in the short run but is detrimental to the consumers always, and also harmful for growth of industry in the long run
c. All countries need foreign capital for their progress and a trade deficit helps in increasing Current Account deficit of nations which in turn helps in faster rate of economic growth (now that's a bit tricky, won't dare to elaborate)
d. The US dollar has become the world currency because US has a very very high trade deficit. US actually has been living off debt from other nations. The public as well as the government have made heavy borrowings by selling - shares, futures, futures of futures and even futures of futures of futures.
Now comes the point of my post. The US is in heavy deficit. At an estimated 280% of exports at the end of 2004 , U.S. debt to export ratio is in shooting range of troubled Latin economies like Brazil and Argentina. If all currencies one day appreciate with respect to the dollar, their imports will decrease vis-a-vis their exports (from and to the US). Which will then mean that the trade deficit of the US will increase (because its own imports will increase and exports will decrease). Now to sustain its economy US must borrow further and the dollar must fall further. But consider the fact that most countries trade internationally in dollars and more so maintain large reserves of foreign currency as dollar store. So all fall in the dollar predicts a decrease in the nominal value of these reserves and which would mean a decrease in "The Wealth of Nations" if I may call it so.
I don't want to take the point any further because i might not be correct in my analysis and further analysis may be further flawed (actually because I have wasted enough time and need to get back to studies)..... but the above paragraph smells like an economic crisis in waiting . . . .
For more reading : http://www.stern.nyu.edu/globalmacro/cur_policy/cad.html