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do you think the fiscal budget or the balance of payments has a larger impact on the strength of the dollar?

Barron

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I think the fiscal deficit helps drives the balance of payment deficit by attracting foreign cash flows to U.S. treasuries, i.e. they aren't buying our goods with the dollars we send them, they are reinvesting them in U.S treasuries because we are borrowing huge amounts of money. This balance of payments deficit helps drive the devaluation of the dollar.

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but if you decompose the BoP you see net exports being the main driver. the growth and unheard of productivity increases during the clinton era (which attracted a TON of capital to equity and non govt debt markets and allowed us to import so much) allowed for balanced budgets due to ever growing tax receipts. fiscal responsibility did go out the window w/ 911 and iraq and tax cuts and the prescription drug benefits package, but the dollar weakness can only be partly (imo at most 35%) explained by fiscal budgets. and in terms of flows that 35% may be WAAAAAAYYYY an over estimate.

Barron