CR makes an interesting case that since most of our consumption is foreign goods, any reduction in spending due to MEW will be felt by foreigners. This is why Roubini says when the US sneezes the rest of the world catches a cold.
However, let’s remember how we obtain the foreign goods. It takes ships, trucks, stores, personnel to deliver all those goods to us, so as imports decrease, so will profits of American retailers who sell us those imported goods Retail has been one of the biggest source of new jobs.
MEW has definitely been used to remodel homes, buy 2nd homes, and cars, so a reduction will hurt the construction and auto industry in this country.
Thus, a drop in MEW will hurt the US first, and then ripple out to the rest of the world, first to our suppliers (China, Germany), and then to their suppliers (Australia, Canada, other SE Asian countries). These countries will end up with fewer dollars to recycle. This is why I made that comment in CR’s comment section, that we will see less demand for US dollars, lowering bond and Treasury prices and raising their yields. (Of course, the drop in oil prices is going to lower imports in the next month, so the next drop we see will be due to falling oil prices not to the drop in imported goods.)
