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Large mature economies are supposed to run trade deficits. The real question is why others who claim to be out of training-pants are still trying to run surpluses.
Large mature economies are supposed to run trade deficits. The real question is why others who claim to be out of training-pants are still trying to run surpluses.
US effectively emits world currency by means of trade deficits, it is a sweet deal for US, but it is too sweet to last forever. I dont really know how folks in the sheltered domestic industries, who are discussing here the competition rigors manufacturing should be subjected to, can earn all that international currency to buy hundreds of billions worth of the foreign goods that US gets effectively for free for time being just by shipping out ones and zeros that do not come back to US to claim physical stuff and labor.
US imports are paid for with US dollars that the central bank of wherever converts them to local currency on behalf of the seller. Once part of the international economy, there is only one thing that those dollars can do -- begin the trip back home again. Sometimes the trip is short and direct. Sometimes it is long and indirect. But dollars are simply a claim on the US economy. They will always return to us in the end. It's all they can do.
US imports are paid for with US dollars that the central bank of wherever converts them to local currency on behalf of the seller. Once part of the international economy, there is only one thing that those dollars can do -- begin the trip back home again. Sometimes the trip is short and direct. Sometimes it is long and indirect. But dollars are simply a claim on the US economy. They will always return to us in the end. It's all they can do.
Dollar is an effective international currency used for 3rd party trade not involving USA, also dollars are means of preserving value, from top banks to individual matrasses, especially in the less stable economies. Once dollar leaves USA it doesnt come back, it gets new life outside of American borders. Theoretically, a dollar is a claim on American resources and labor, that is what makes me wonder. So far, a good chunk of Americans makes great living in the domestic industries of zero value for the international market, while the segments exposed to international competition suffer. What would happen to this kind of prosperity once dollars start coming back, and eventually the time will come when Americans will need to sell something to earn enough of this or that currency to buy something, borrowing will not be an option. How much decline in living standards should we expect under that scenario?
How much decline in living standards should we expect under that scenario?
If I have done the calculations right the United States trade deficit is about 130 dollars per person. Considering that any decline in living standards is going to be felt over the course of what will probably be a quite gentle depreciation - people want dollar-denominated assets - I wouldn't be worried at all.
If I have done the calculations right the United States trade deficit is about 130 dollars per person. Considering that any decline in living standards is going to be felt over the course of what will probably be a quite gentle depreciation - people want dollar-denominated assets - I wouldn't be worried at all.
It is more like 1,700 per person per year but it is not the issue. The issue is that $1 of deficit (e.g..imported shirt) generates $25+ worth of economic activity by the people producing $0 value for the great outside. So basically entire price structure (expensive services, cheaper. goods) entire economy rests on the shoulders of trade deficits. Imagine tectonic realignments it would take for American economy to produce 500 billions worth of goods for the international markets having no use for the sectors creating the bulk of American gdp.
Last edited by RememberMee; 12-12-2016 at 12:41 PM..
Dollar is an effective international currency used for 3rd party trade...
It's just a matter of taking the long way home. The economics are clear here. All that US dollars -- or any other currency -- in the international economy can do is either slowly or quickly make their way back home again. There is no more intrigue to it than that.
Quote:
Originally Posted by RememberMee
...eventually the time will come when Americans will need to sell something to earn enough of this or that currency to buy something, borrowing will not be an option.
We don't go a-borrowing. Holders of dollars are lined up around the block waiting to invest in the US. Some of those dollars go into US stocks, bonds, and real estate. Much goes off into US Treasuries.
It's just a matter of taking the long way home. The economics are clear here. All that US dollars -- or any other currency -- in the international economy can do is either slowly or quickly make their way back home again. There is no more intrigue to it than that.
We don't go a-borrowing. Holders of dollars are lined up around the block waiting to invest in the US. Some of those dollars go into US stocks, bonds, and real estate. Much goes off into US Treasuries.
Pub911, USA’s chronic annual trade deficits have been consistently dragging down our annual GDP and median wage every year in excess of a half century duration. No; U.S. wealth doesn’t all come back to benefit USA’s economy.
Transfers of wealth, e.g. individual’s purchasing or selling General motors stock) does not provide any additional capital to the General Motor corporation and does not increase USA’s domestic production. This is true regardless of the individual’s nationalities.
All wealth such as money or goods or services provided to better enable enterprises to produce more goods and service products within the USA are investment into the USA.
I’m among the proponents for USA adopting an Import Certificate trade policy for our global trade.
Investors are deterred by poor economies and attracted to healthier economies. USA would be better served by an economy that supports a greater GDP and numbers of jobs rather than by an economy that experiences lesser annual GDPs and numbers of jobs due to their chronic annual trade deficits.
The trade policy proposal as described in Wikipedia’s “import Certificates” article would eliminate or almost eliminate USA’s annual trade deficits of goods while increasing our annual GDPs and numbers of jobs more than otherwise. It also serves as an indirect price subsidy of USA exported goods.
All net costs due to the policy are passed on to USA purchasers of imported goods. There are no net costs to the federal government due to the policy. The extent of price increases to USA purchasers of imported goods is substantially market rather than government determined. The extent of price subsidies of USA’s exported goods is entirely market determined.
People can invest in all sorts of nonsense if they choose to. But the facts remain that dollars in the international economy -- just like dollars here -- are simply claims on the outputs of real goods and services produced in our domestic economy. It is the destiny of every dollar that leaves the US eventually to come home again.
Meanwhile, the global balance of trade is always equal to zero. Some big rich economies need to run deficits so that some small poor economies can run surpluses that fund the sorts of export-driven growth that lead to creation of an educated middle class that can carry that economy forward.
I hope you'll give generously to the charities of your choice at this holiday season as well.
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