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Contrary to popular belief, the economy (as measured by unemployment, that is) tends to do better when the balance of trade is negative.
In fact, when the balance of trade starts to contract, that’s when unemployment increases. Extending the analogy further, during the Great Depression, which no one would ever argue was a time of great prosperity in the United States, there was a surplus of trade every single year. Still worried about China?
I am not sure that I agree with that. If we did not borrow to make up the difference......we would see different results. As the trade deficit has risen....so has our national debt and consumer debt levels. The economy is about money turning over in transactions. A trade deficit generally means that we are sending more money out of the country than money is coming into the country, meaning the transnational value is reduced as our money supply is reduced. However, banks keep creating more money into existence and lending it out at rates faster that we lose money to trade deficits. If we stop increasing debt....then the whole economy falls apart.
I am not sure that I agree with that. If we did not borrow to make up the difference......we would see different results. As the trade deficit has risen....so has our national debt and consumer debt levels. The economy is about money turning over in transactions. A trade deficit generally means that we are sending more money out of the country than money is coming into the country, meaning the transnational value is reduced as our money supply is reduced. However, banks keep creating more money into existence and lending it out at rates faster that we lose money to trade deficits. If we stop increasing debt....then the whole economy falls apart.
Much of the money comes back in by investments. You are correct that the trade deficit helps finance our interest on the federal debt. The trade deficit also helps maintain the dollar as the world's reserve currency (see Triffin Dilemma).
Much of the money comes back in by investments. You are correct that the trade deficit helps finance our interest on the federal debt. The trade deficit also helps maintain the dollar as the world's reserve currency (see Triffin Dilemma).
Investment in government securities which we have to pay back with interest can hardly be advantageous to us. And China would be more than happy to replace the dollar as reserve currency.
It's the other way around. When the US economy is growing and employment is growing, the trade deficit has tended to expand. People consume more goods than they produce. The cost of imported commodities also rise.
Debt is a function of government spending and has nothing to do with Trade or Employment.
The ability to pay it off does.
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