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but you are claiming that interest rates go up because of the trade deficit
that only happens if the US borrows money in other currency to finance the trade deficit
but the dollar is a reserve currency so the US doesn't have a problem with financing the trade deficit.
if everybody is employed as highly paid programmers, does it matter if the US import all it needs?
what the US should be fixing is unemployment and its budget deficit.
If you fix the budget deficit then how are you going to feed the trade deficit?
My take on it is to aim for about 3% inflation. If inflation moves past 4% then the budget deficit should be shrunk, preferably by a reduction in spending because it would address shortages as well as address the financially created demand. Raising taxes would only reduce the financial aspect of the problem.
If you fix the budget deficit then how are you going to feed the trade deficit?
My take on it is to aim for about 3% inflation. If inflation moves past 4% then the budget deficit should be shrunk, preferably by a reduction in spending because it would address shortages as well as address the financially created demand. Raising taxes would only reduce the financial aspect of the problem.
I'm not an economist so I'm not expert on solving these problems.
what I do know from econ 101 is if you don't collect enough tax to finance your spending, you have budget deficit. you either borrow to finance it or reduce spending.
if you keep on borrowing, interest rates go up. this maybe a good thing as it signifies increase economic activity too so its just fine because the economy is growing.
the problem is when you keep on deficit spending (just like now) and the economy has no more room to grow.
for the trade deficit, in my opinion, as long as everybody is employed (comparative advantage) and the US dollar is reserve currency, it should not be a problem
I'm not an economist so I'm not expert on solving these problems.
what I do know from econ 101 is if you don't collect enough tax to finance your spending, you have budget deficit. you either borrow to finance it or reduce spending.
Economics at the macro level used to be called political economy. Unfortunately since then it has been far too influenced by mathematical and formulaic principles that are not very accurate. Private debts are generally intuitively understood. Public debt is best thought of as cash or money. Generally sovereign debt just shows up as inflation if taxes are not collected.
In other words the fundamental back bone of the money system is chartalism. Its split into two different basic types of fully negotiable cash and interest bearing notes.
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if you keep on borrowing, interest rates go up. this maybe a good thing as it signifies increase economic activity too so its just fine because the economy is growing.
Not anymore. The Fed can, and did, buy up all the high yielding debt so interest rates fell. Just because intrest rates fall does not mean people will spend more money. Gold has no yield at all and it has been hoarded many times.
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the problem is when you keep on deficit spending (just like now) and the economy has no more room to grow.
for the trade deficit, in my opinion, as long as everybody is employed (comparative advantage) and the US dollar is reserve currency, it should not be a problem
Not the limiting factor. The limiting factor is industrial capacity and the level of employment. Best to think of public finances as a mirror image of the private economy. When the private sector is running at high capacity and making lots of money, the country is broke. Everyone and everything is busy. No public project can be executed without high private sector opportunity costs. People wil have to stop what they are currently doing in the private economy.
When the public fiance is poor from lack of private revenue from falling industrial activity and unemployment, then the country has lots of resources to spend.
Its counter intuitive and its why there is so much confusion and disagreement. Financial wealth is not the same thing as prosperity. The only way to grow net private financial wealth is for da guberment to increase its liabilities...
I have no idea on this subject. Could anybody educate me a little?
Trade deficits are not bad.
The trade deficit with China to date for 2018 is $119 Billion.
If someone points that out, your question to them should be how much GDP did that $119 Billion generate?
If that $119 Billion generates $400 Billion in GDP, then you're $281 Billion to the good.
If you didn't have a $119 Billion trade deficit with China for 2018, would you still be able to generate $400 Billion otherwise? Maybe, maybe not. You'd have to look at exactly what was traded.
One thing trade has done is altered your Life-Style and Standard of Living.
Do you like 24-hour things? You know, like 24 hour grocery stores, department stores, restaurants and gasoline stations?
Because, if you do, you know, like them, you need to understand you have them only because you have the labor for them. You didn't have that in the Past, because you didn't have the labor.
Same with Starsucks and all other amenities and services. They exist, only because you have the labor, and you have the labor only because you are not self-producing products.
To be totally self-reliant with no imports, you'd have to more than double your population to 750 Million people and assuming an Employment-to-Population Ratio of 60% (which you can't even reach now, but did have in the Past), that would give you a work-force of 450 Million employees, almost three times the size of your work-force now.
That's what it would take.
Of course, with a population of 750 Million, you can imagine the cost of homes, rents and food prices. Your Standard of Living and Life-Style would actually be less than what it is now.
One of the advantages of trade is that it frees up Labor and Capital for other uses, which nearly always increases the Standard of Living.
Your Standard of Living and Life-Style would actually be less than what it is now.
One of the advantages of trade is that it frees up Labor and Capital for other uses, which nearly always increases the Standard of Living.
^^^agree with this 100%
if the US sew its own garments and pay minimum wage compared with outsource this job and import it cheaper and let the sewers sew heart valves for higher wage..i think that's the best example
bold: Excellent questions and points. This is exactly what I am talking about.
First of all, let me emphasis on this point: biggest misconception about the trade deficit is that it means money is flowing out of the country. A trade deficit does NOT mean money is flowing out of a country.
The level of foreign investment in the US minus US investment overseas is the financial account surplus. The financial account surplus is equal in size to the current account deficit. So, the trade deficit does not mean money is flowing out of the economy. It means foreigners are investing in the US.
So I can understand those who say trade deficit as of now is not a bad thing. I can understand that and I don't disagree with their point.
HOWEVER, HERE IS ALWAYS THE HOWEVER
There was a time post WW2, when the industry in Europe and Japan was still mostly destroyed from the war and the US was more or less the only country with a large industrial capability, so everybody was forced to buy from the US and this created lots of very wellpaying jobs.
This has changed. The US are not the only supplier anymore.
The correct question to ask is not
If trade deficit is a bad thing or a good thing? because it really depends on the situation. It can be a good thing.
I think the correct question to ask is: How much does it matter? At what point we should worry?
World economy has changed, slowly, but surely. Holding on to the "we should always have trade deficit because $$ is the world's reserve currency" thought is a bit outdated if you are asking me.
Your post is spot on. I would like for people to think about this:
A lot of US government bonds (treasuries) for example are held by foreigners. Some poorer countries also have international debt ? but not as much as you might think for all the talk of a third world debt crisis. Even in this age of global capital, most government debt is owed to domestic investors in most of the world. Turkey, for example, has a big national debt, but it is financed mostly by Turkish savers.
Ask you this, do you want your national debt to be held by foreign countries?
Long-term, China wants the yuan to replace the U.S. dollar as the world's global currency. China is also responding to accusations of manipulation. Most countries want their currency values to fall so they can win the global currency wars. Countries with lower currency values export more. Their products cost less when sold in foreign countries.
Duh, but nooooo, we shouldn't worry. Run trade deficits because $$ is still the world's reserve currency. Let's ignore all these other factors. Trump is a dumb ass, it is all about politics. This is ALL they are saying.
Forget Trump for a second, please.. for God's sake. I am not saying Trump has all the answers, I certainly don't know if Trump knows what he is doing. However, trade deficit is certainly a concern, and I am not very confident about it.
So why does China want the yuan to be the world’s reserve currency?
If you fix the budget deficit then how are you going to feed the trade deficit?
My take on it is to aim for about 3% inflation. If inflation moves past 4% then the budget deficit should be shrunk, preferably by a reduction in spending because it would address shortages as well as address the financially created demand. Raising taxes would only reduce the financial aspect of the problem.
You don’t because they are apples and oranges - one thing has nothing to do with the other.
But where did all this Central European silver go? Historically, from the mid-fourteenth century, most of the German silver-mining outputs had been sent to Venice, whose merchants re-exported most of that silver to the Levant, in exchange for Syrian cotton and Asian spices and other luxury goods. Two separate factors helped to reverse the direction of that flow, down the Rhine, to Antwerp and the Brabant Fairs. The first was Burgundian monetary policy: debasements in 1466-67, which, besides attracting silver in itself, reversed a half-century long pro-gold mint policy to a pro-silver policy, offering a relative value for silver (in gold and in goods) higher than anywhere else in Europe.[40] Thus the combined Flemish and Brabantine mint outputs, measured in kilograms of fine silver rose from nil (0) in 1461-65 to 9,341.50 kg in 1476-80 ? though much of that was recycled silver coin and bullion in quite severe debasements. But in 1496-1500, after the debasements had ceased, the mean annual output in that quinquennium was 4,872.96 kg; and in 1536-40, at the peak of the mining boom (and,
some posters here are still advocating the return of the gold standard
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