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To: moonshot925
It depends. Continual large trade deficits are not good. You end up like Greece, bankrupt or at least very poor.

Continual large surpluses are also not good. You might end up like China, building ghost cities and misallocating capital, finally forced to revalue their currency anyway. Or like Germany, who created the Euro to juice their export markets. It worked too well, now they have to either finance their trading partners, see them leave the Euro, or leave the Euro themselves. Or you might end up like Saudi Arabia, a few at the top get to spend the money while the rest live of a government dole. When the oil runs out, so will the false prosperity.

Since the US has run large trade imbalances for decades, you might ask why it hasn't ended up like Greece. There are several reasons, the primary ones are: the role of the US dollar as the primary reserve currency, the perception of the US as a "safe haven", the size and strength of the US economy, and a AAA credit rating, until now.

5 posted on 06/21/2012 11:20:06 AM PDT by Former Proud Canadian (Obamanomics-We don't need your stinking tar sands oil, we'll just grow algae.)
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To: Former Proud Canadian
Continual large surpluses are also not good. You might end up like China, building ghost cities and misallocating capital, finally forced to revalue their currency anyway. Or like Germany, who created the Euro to juice their export markets.

Trade surpluses, in and of themselves, are neither bad nor good. They are simply a reflection of a country's monetary policy. The U.S. runs an extremely inflationary monetary policy and, therefore, runs a high trade deficit. Germany maintains a relatively stable monetary policy (as Japan did until just this year) and runs a surplus.

China is in the process of inflating wildly and its trade surplus is declining rapidly.

It's false to claim that trade deficits must be "financed." They don't. Good post.

29 posted on 06/21/2012 3:42:15 PM PDT by BfloGuy (The final outcome of the credit expansion is general impoverishment.)
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