Exports and imports are good. It’s trade. It allows the economy to take advantage of relative advantages in production. The answer here is a resounding “YES!” We benefit. Our trade partner benefits.

Are net exports good? Net exports represent domestic savings that gets invested in a foreign country. The answer here is a qualified “no.” A country that has a strong economy and compelling investment opportunities will attract capital from foreign countries. A country that exports capital has exhausted all investment possibilities at home and now seeks it abroad. But just looking at net exports numbers isn’t enough to rule a good or bad.

The single most important factor to look at is the rate of investment in an economy. More investment equals a better future for the economy. Other numbers to look at are domestic savings rates and the such.

The real problems with the falling dollar is that countries that have accepted or held onto dollars or dollar-denominated debts are reconsidering their position. In the past, the Asians and the Persian Gulf states have helped us by importing our inflation. If those states drop the dollar and dollar-denominated debt, they export all that inflation back to us, and the dollar will suffer from hyper-inflation.

No country in the developed world has devalued their currency as much as we have. Our “hands-on” approach to government managed economy has driven our currency down by roughly a third, if i am correct. The Euro, however, is quite strong. A problem will occur when all of those foriegn nations who hold our dollars right now (exchanged for their goods) realize that we have been giving them increasingly worthless paper. While this may not necessarily, and most likely will not, lead to war, it will definitely cripple our economy when they drop our currency for the Euro.

What do you mean by “they’ve held these dollars expecting us to keep our promises” ?

We gave them dollars for imported goods. The trade was fair, the foreign countries accepted the risk of currency fluctuations.

I don’t think the situation is a justification for war. It will just result in other countries re-evaluating their appetite for dollars – downwards.