What's the first price Americans are likely to pay for the U.S. Treasury's proposed $700 billion bailout to stabilize the financial markets? Higher prices for imported goods and higher domestic inflation, currency traders say.

The dollar Monday fell against the world's other major currencies as institutional investors and other currency traders started to come to terms with sheer size of the U.S. Government's proposed intervention.

The dollar fell about 1.1 cents to $1.4608 and $1.8442 versus the euro and British pound, respectively, and about one-half yen to 106.38 versus Japan's yen in midday Monday trading.

Cites laws of economics

Currency trader Andrew Resnick told BloggingStocks Monday that unless the laws of economics have been suspended, the dollar's direction, short-term, is likely to be lower.

"This is going to be a large expenditure of public funds. We can't tax our way out of it. And if [Republican Party presidential candidate U.S. Sen. John] McCain is elected, we won't tax our way out of any of it, so that leaves two options, borrowing or printing money," Resnick said. "The currency market right now believes it will be mostly borrowing, which means more dollars in supply, forcing the dollar lower."

Resnick added that he presently has dollar-short positions in the euro / dollar, dollar / yen and British pound / dollar currency pairings.

The dollar registered another week of impressive gains against both the euro and the pound. So where is the dollar headed from here, looking forward, a quarter or two?

BloggingStocks asked economists David H. Wang and Richard Felson to outline the dollar bullish and bearish views, respectively. The dollar finished the week at $1.4217 versus the euro and at $1.7927 versus the British pound. The greenback has advanced about 11% and 10% versus the euro and pound, respectively, in the last quarter.

Economist Wang said he sees a continuation of the dollar's rally in Q3 and Q4. Wang argues the U.S./global economic slowdown and accompanying credit concerns "will create a period of retrenchment on the part of institutional investors, and even once high-flying commodities won't be spared." The benefactor? The U.S. dollar, in a flight to quality, flight to safety.

"The dollar will rise for reasons that have nothing to do with U.S economic growth and everything to do with a lack of venues to put that capital to work productively," Wang said. "The prevailing psychology in Q3 and Q4 will be capital preservation." Wang sees the dollar strengthening to $1.30 versus the euro and to $1.65 versus the British pound by early 2009.

Conversely, economist Felson sees an end to the dollar's rally. Felson argues that the global slowdown will continue in Q3 and Q4, reducing both international trade levels and commodities demand. The former will see investors pull money out of stocks, the latter out of commodities as asset plays, with the euro and British pound benefiting.

Your take on the July U.S. trade data may very well hinge on whether you tend to see a half-glass of orange juice as a glass half-empty or half-full.

The downside: the U.S. trade deficit increased 5.7% in July to $62.2 billion, the U.S. Commerce Department announced Thursday. Economists surveyed by Bloomberg News had expected a $58.0 billion trade deficit for July.

The upside: the non-petroleum trade deficit in goods declined 9.8% to $29.6 billion -- its lowest level in six years, the Commerce Department said.

Almost all of July's trade deficit increase was due to oil. So, does the July trade statistic constitute a modest victory, or something less?

"It means the nation's trade deficit picture is improving, just as long as we don't use any oil," economist Peter Dawson said. "Kidding aside, the non-oil component of the trade deficit continues to improve, and I'm emphasizing that dimension. The oil import component should decrease provided oil prices continue to moderate and Americans continue to cutback gasoline use, so the trend line at least through Q4 is a good one for the trade deficit."

Overall in July, imports rose 3.9% to $230.3 billion, and exports increased 3.3% to $168.1 billion. Strong performance areas for exports included airplanes, machinery, auto parts, computers and industrial materials.

Wall Street, really a typical, small, village-like setting, save for the fact that about $8-12 trillion dollars in capital passes through its vortex daily, is a pulse-taking community. And for a dose of reality to counter-balance the sometimes too-rosy institutional research, the Street looks to the 'perpetual pessimist,' Stephen Roach, Morgan Stanley's (NYSE: MS) Asia Chairman.

Roach's take on economic state-of-things as the United States gets back to work this fall? Don't play "Happy Days Are Here Again" just yet. Roach said the global economic slowdown has only just begun, with the United States heading into a recession and the impact of the credit crunch still roiling through financial institutions around the world, Bloomberg News reported.

"There's more to this macro event than just the credit-market contagion itself," Roach told Bloomberg News. "Maybe two-thirds of that is behind us, but the impacts on the real side of the U.S. economy and the global economy are at an early stage.''

U.S., global economies slow together

Economist David H. Wang told BloggingStocks Wednesday Roach's analysis and comments should not be ignored by executives, small business owners, or typical citizens as they set their budgets and financial plans for the year ahead.

The comeback of the beleaguered dollar continues.

The dollar strengthened to a six-month high versus the euro Tuesday, and also rose against the world's other major currencies on a growing consensus in foreign exchange circles that global economic fundamentals are shifting in favor of the greenback.

The dollar strengthened about 1.5 cents to $1.4465 versus the euro, and about 1.4 cents to $1.7877 versus the British pound Tuesday at mid-day. The buck also gained one-half yen to 108.62 versus Japan's yen.

Pivotal for dollar: Europe, Asia GDP

Further, although Tuesday's dollar catalyst was the realization that Hurricane Gustav would cause considerably less-than-forecast damage to Southeast U.S. oil production and the refinery infrastructure, trader Andrew Resnick told BloggingStocks the longer-term focus remains regional GDP growth.

"With Hurricane Gustav out of the way, sentiment's building that this dollar rally has legs. European growth has slowed to recession levels, and China's economy has slowed as well. For Europe, lower interest rates are likely to follow, and that's dollar bullish," Resnick said. Resnick added that he expects the Bank of England to cut its benchmark interest rate by a quarter-point to 4.75% when it meets September 4. He doesn't expect the European Central Bank to lower its 4.25% refinance rate on September 4, but that stand-pat policy may change to accommodation, later this fall.

New York Times columnist Thomas Friedman, who perhaps most-accurately conceptualized the revolutionary production shifts implied by globalization in The World Is Flat, has a 'radical' economic prescription for the United States, as it moves toward the second decade in what is quickly becoming the century of change.

Friedman suggests that the United States try nation-building....at home.

Moreover, Friedman makes the case for nation-building as good for U.S. business - - a much-needed shot-in-the-arm for the U.S. economy.

U.S.: inadequate infrastructures for a major power

Friedman's main concern: the U.S.'s inadequate infrastructure (electric grid, roads/bridges/rail network, air travel system, hospitals, among others), which is antiquated compared to the infrastructure of the U.S.'s chief economic rival, China. Friedman has just attended the 2008 Olympics in Beijing and its clear China's public investments - - better airports, roads, parks, to go along with the sports venues - - have impressed him.

It's also clear to Friedman that the U.S.'s period of underinvestment is holding the nation back economically, and that has to change if the U.S. expects to remain commercially competitive on the global stage. Economist David H. Wang told BloggingStocks he agrees, for the most part, with Friedman's analysis, but adds that the journey to a better infrastructure is not a strictly an economic equation.

A sluggish U.S. economy that grows at 3.3% in Q2? What's going on here?

The U.S. Commerce Department Thursday revised its Q2 GDP growth estimate to 3.3% from the previously-estimated 1.9%, but economist David H. Wang remains a skeptic regarding the appearance of an economic recovery.

"Don't write home or e-mail home that we have 'blue skies' ahead regarding the U.S economy because the skies remain uncertain and stormy looking. If you take away the export gains, the economy is still pretty weak," Wang said. "Also, one quarter does not a recovery make, and we'll get final data on Q2 GDP in September [September 26]."

Economists surveyed by Bloomberg News had expected the preliminary Q2 GDP statistic to total 2.7%. The U.S. economy grew at a 0.9% annualized pace in Q1 and contracted 0.2% in Q4 2007.

Q2 GDP data fleeting?

Wang said an improvement in exports and inventory accumulation strengthened GDP in Q2, but other factors suggest "it will be difficult, if not impossible to match that GDP growth rate in Q3 and Q4."

It's been said that old habits die hard.

And one habit likely to change is European Central Bank President Jean-Claude Trichet's penchant for delaying interest rate cuts until the last possible moment, so says economist Richard Felson.

"In this case, Trichet will be joining the Fed's rate cut party this fall," Felson told BloggingStocks. "In fact, if economic conditions continue to worsen in Europe, they may even precede the Fed with a rate cut." The ECB next meets to discuss rates on September 4; the Fed, on September 15.

The Fed, as investors / readers are aware, has paused in its rate cut cycle, after decreasing interest rates by 325 basis points, to 2% from 5.25%, in an effort to jump-start a U.S. economy dragged down by its worst housing slump in a generation. Meanwhile, the ECB has remained in restrictive monetary policy mode - - first increasing its refinance rate by a quarter-point to 4.25%, in mid-2008, then taking a stand-pat stance, citing inflation pressures.

What's one trend that's starting to feel the pinch of sky-high oil prices?

If you answered 40-mile commutes to work and/or tank-sized SUVs, you're right, but in this case it's the business process called the global supply chain.

The logic of, for example, shipping Brazilian iron ore to China to be made into steel, then shipping it back to Long Beach, California in the form of washing machines is making less sense today than it did when oil was $25 per barrel a decade ago, The New York Times reported.

In fact, some manufacturing that fled Mexico for even-lower-cost-labor China is now returning to Mexico because it's cheaper per unit to manufacture the goods in Mexico and send them to the United States, after oils costs for shipping are considered, The Times reported.

Spanning the world: it isn't cheap

Economist Peter Dawson told BloggingStocks that investors / readers should expect more 'repatriation' of manufacturing if oil stays above $100 per barrel.

"Companies will be begin to shift, in some cases, on a product-by-product basis, the production of goods to net lower cost zones," Dawson said. "China's percentage of manufacturing in the world will continue to increase, but the calculus now is more complicated. It's no longer 'O.K., we need 200,000 auto motors, off we go to China.' Those motors may end up being less expensive if secured in Mexico, after transport costs are considered."

Europe's economy contracted in Q2 for the first time since the euro was launched more than 10 years ago, as exports underperformed and energy costs cut into consumers' disposable income, Eurostat, the European Union's statistics office announced (PDF) Thursday.

Euro-zone Q2 GDP fell 0.2% and EU27 Q2 GDP -- which includes nations in the European Union but not formally a part of the euro currency system -- fell 0.1%, Eurostat said. In Q1, Euro-zone GDP rose 0.7%.

Further, on a year-over-year basis, euro-zone GDP increased 1.5%, with inflation running at about 4.0%, well above the European Central Bank's 2.0% annual limit.

Economist: 'Bad news for global economy'

Economist David H. Wang told BloggingStocks Thursday Europe's slowing economy "is bad news for the global economy."

"This is bad news because we need European growth to prevent a global economic slowing. But the economies in two major European economies are clearly slowing. Germany's GDP fell 0.5% in the first quarter, and France's fell 0.3% in the second quarter, so given their make-up in the euro-zone, Europe has experienced a pronounced slowing," Wang said.

The great Bob Dylan once wrote "so you better start swimmin', or you'll sink like a stone, because the times they are-a changin'."

The dollar bears better start swimming, or at least change their positions, because the dollar's improbable rise continues.

The British pound fell to a two year low versus the dollar Wednesday, plunging 3 cents -- a gargantuan move in the currency market for one day -- to $1.8651, after the Bank of England lowered its GDP growth forecast for the United Kingdom, Bloomberg News reported Wednesday. The pound, which traded at $2.0157 last month, has now fallen about 7.5% versus the dollar in two weeks.

The pound also fell about five yen to 202.68 versus Japan's yen Wednesday morning.

Bank of England Governor Mervyn King said 2009 will be "painful" with zero growth and high inflation, The Telegraph reported Wednesday.

Further, although the Bank of England underscored the need for monetary policy vigilance to control inflation, currency traders interpreted the bank's GDP comments as a sign that an interest rate cut is likely from England's central bank, currency trader Andrew Resnick said.

In this market and this economy, you take the good news where you can get it.

Today, we got some good news: the U.S. trade deficit narrowed in June to $56.8 billion on record exports and a dip in non-oil imports, the U.S. Commerce Department announced Tuesday. Economists surveyed by Bloomberg News had expected the June trade gap to be $61.5 billion.

Exports surged 4% in June to a record $164.4 billion, the largest gain in four years. Imports increased 1.8% to a record $221.2 billion, inflated by sky-high oil prices. Oil, which traded at about $113.65 per barrel on Tuesday at mid-day, is up about 360% since 2003.

U.S. export activity has been a silver lining in the nation's otherwise anemic economy. The trade deficit has been declining for about two years, aided by a weaker dollar and demand for products in emerging market countries.

A stronger U.S. economy in Q2?

Economist David H. Wang told BloggingStocks Tuesday the June trade deficit statistic "was a really pleasant surprise," but he still wants to lower expectations.

"The high export number is the standout, and it's one that, if it continues, implies a higher rate of GDP growth for the U.S. economy in Q2, but let's not jump the gun. Economists sense there's a global economic slowing going on, exports may have peaked as a result, so this large increase in June may prove to be transitory," Wang said.

Toyota (NYSE:TM) built a great deal of its US business, especially in the 1970s and 1980s, on assembling cars inexpensively in Japan and shipping them to the US. Then the world's largest vehicle maker built plants in the US to satisfy rising demand for its products and to offset resentment that it was only an importer with no interest in employing American workers.

Toyota may now regret its decision to build big manufacturing facilities on US soil. Many of the new facilities were set up to make SUVs and pick-ups for a market that moved to these vehicles in the 1990s and the current decade. High gas prices have killed that business over the last year or so.

Toyota may have come up with a good but ironic solution. It may ship SUVs and pick-ups from its US plant to countries where there is still some demand for the vehicles. The car company, once a leading importer to the American market, is now moving into the export business.

According to The Wall Street Journal, "The auto maker, which produces the Tundra pickup and Sequoia SUV, is looking at other markets around the world, although no decision has been made," It shows how management moves that looked good in one decade can sour in the next.

Douglas A. McInyre is an editor at 247wallst.com.

The U.S. economic slowdown is likely to extend into 2009, as the nation's longest expansion in consumer spending subsides, economists in a new Bloomberg News survey predicted.

Further, economists surveyed expect the world's largest economy to grow at a 0.7% annualized rate in Q3 and Q4, or about one-half the GDP of the first-half of 2008. The survey of 50 economists was conducted August 1-8.

Economist Glen Langan, who did not participate in the Bloomberg News survey, said Monday he's watching the export segment for signs of further slowing. "Up to now, U.S. export activity has been able to keep U.S. GDP positive. But if exports slow in conjunction with the housing slump and a pull-back in consumer spending, the next 12 months could see additional slowing," Langan said. "An already clouded economic picture could become more stormy."

Keep an eye on U.S. export data, Asia GDP

Langan added that tell-tale signs of slowing exports will be Q3 GDP from emerging market economies, particularly in Asia. Economists and investors/traders will also receive a snapshot of June export data when the U.S. Commerce Department releases U.S. trade balance data Tuesday at 8:30 a.m. EDT.

Thirty years ago, China did not have much of a middle class. A large number of people who have recently moved to big cities for jobs in the fast-growing economy still lived in rural areas then. China's increasing role as an exporter changed that.

As Chinese began to see wage improvement, these people not only became consumers of goods, they drove a thriving stock market and real estate prices. A lot of that is about to end.

According to The New York Times, "Chinese factories reported a plunge in new orders last month. Exports are barely growing. The real estate market is weakening." Some of the immediate fallout of that will be good for the West. China may need less oil and a smaller supply of metals commodities. That could bring down the prices of these and cut back inflation in big economies like the U.S.

The less pleasant side of the coin is the U.S. exports to China will almost certainly slow, putting pressure on corporate earnings here.

The worst case is much worse, and looks like Japan in the 1980s. A boom in exports helped drive inflation in Japan. The value of its real estate and banks sky-rocketed. Japanese businesses started to buy up U.S. assets. When growth in Japan slowed a bit, the value of real estate and the stock market in the country collapsed. Money from Japan used to buy U.S. treasuries disappeared. So did the demand for U.S. goods and services. No one was a winner.

It is hard to imagine a recession in China as it has a GDP growth rate of nearly 10% and has been growing faster than that for years. But Japan's problems thirty years ago are a warning. Nothing good lasts forever.

Douglas A. McIntyre is an editor at 247wallst.com.