American Trading In 1800

Is US reliance on other nations over the top?

This year, as the nation celebrates Independence Day, the sputtering U.S. economy offers a stark reminder that today we are more dependent upon foreigners than ever before.

We need them to finance our debt: China and Japan together hold more than $2 trillion of U.S. Treasury bonds.

We need them to supply much of the oil that's critical to our economy.

We need them to make the shoes we wear and the gadgets that dominate our lives.

We even need them to buy more of the products we make, as growing exports are vital to our economic rebound.

None of these dependencies are particularly new, but there's growing concern about how much economic independence we've lost.

"We're much more dependent than we have been, probably since the 1800s," said Clyde Prestowitz, a former U.S. trade negotiator and author of the 2010 book "The Betrayal of American Prosperity."

"I think dependence per se is not necessarily a bad thing. The question is whether the dependence is working to your advantage or against you. ... Our dependence is growing in ways that are disadvantageous to us."

The most obvious example of dangerous dependence comes from foreigners owning our debt. Through April, the most current reading, foreigners held 31.4 percent of Treasury Department-issued securities, worth almost $4.5 trillion. That's up sharply from June 2005, when foreigners held 24 percent of U.S. Treasury debt.

Two countries account for half of today's number: China ($1.152 trillion through April), and Japan ($906 billion).

If China or Japan were to sell their holdings at once, that would badly disrupt financial markets. Such a scenario is unlikely since it would reduce the value of their holdings and harm relations with a vital market for their exports. But holding huge amounts of U.S. debt gives these nations a degree of leverage over us, especially on issues such as trying to get China to revalue its currency.

And China's undervalued currency gives it a trade advantage over us. It makes China's exports to us cheaper and our exports to them more expensive. Our two-way trade imbalance skews widely to China's favor.

The tale of dependency is clearest in imports. Overall imports from the world in April totaled $182.2 billion; China accounted for more than 16 percent of that at $29.6 billion.

The United States last year had a trade deficit of $497.8 billion, up from a deficit of about $375 billion in 2009. That includes trade in services, such as insurance. On merchandise trade alone, the U.S. deficit last year was $634.9 billion.

Gold Targets $1800/oz on Seasonal Strength and Deepening Eurozone ...

Gold is trading at $1,504.13/oz, €1,039.34/oz and £933.89/oz.

Gold is higher today and showing particular strength against the euro and the Japanese yen. The relief rally seen in equities since the latest Greek ‘bailout’ is under pressure as S&P have said the debt rollover proposal would be a “selective default”. The ECB may selectively reject the S&P Greek downgrade and arbitrarily select the best credit rating being offered.

Gold in USD – 1 Year (Daily)

The risk of contagion in Eurozone debt markets and banking systems remains. Portuguese, Spanish and Italian debt has been sold this morning. Systemic risk from contagion in the credit-default swaps market also remains a threat.

In the U.S. political squabbling over raising the $14.3 trillion debt ceiling continues. However, it is likely to be resolved as the massive liabilities incurred (not including unfunded liabilities of over $60 trillion) simply cannot be paid back. It is therefore likely that more debt monetization (creating money to buy government bonds) will occur leading to further currency debasement and the risk of stagflation and severe inflation.

Cross Currency Rates

Gold's Seasonal Strength - July to December Could See $1,800/z Challenged

Gold has been supported in the traditionally weak “summer doldrums” period due to institutional demand and strong physical demand at the $1,500/oz level, particularly from Asia.

The summer months of June and July normally see seasonal weakness and it is thus a good time to buy on the seasonal dip.

Gold is now entering its period of traditional seasonal strength which is seen between July and December.

Gold tends to take a break in October and then has a second period of seasonal strength from the end of October to the end of December.

This has been primarily due to Indian religious festival, store of wealth, demand in the autumn and western jewellery demand prior to Christmas.

Since the liberalization of the gold market in China in 2003, demand for jewelry and bullion from China for Chinese New Year (mid to late January) is also becoming an increasingly important factor.

It is likely that seasonal weakness in equity markets, with both the ‘sell in May’ factor and tendency of stock markets to be weak and occasionally to crash in October may also lead to safe haven demand during this period.

Encyclopedia of American Foreign Policy

The development of the organisation of Anglo-American trade, 1800-1850

Historical Atlas of Canada: The land transformed, 1800-1891

Financing Anglo-American trade, the House of Brown, 1800-1880

The Shaping of America: Continental America, 1800-1867