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To: Joe Bonforte
You ask for data. A most reasonable position.

Note the substantial imbalance in trade.

And here's a chart of net investment. Notice that foreign investors own more and more of America.

Now, notice that foreign holdings of U.S. Treasury debt is presently above 1.5 Trillion dollars. Link. Most are notes, some are bills - the average maturity is not stated. Let us assume the interest rate is 2%. treasury rates. The cost, then, is $30 billion per year or more.

Given the large and growing amount of debt to foreign nations, the large and growing size of our trade deficit, the large and growing foreign ownership of domestic assets, it seems that there is an imbalance of trade.

Notice that Ricardo assumes that trading partners will each be the best producer of something, and a balance of trade will result. These numbers suggest that trade is not balanced and is becoming more imbalanced. This, in my opinion, implies a defect in Ricardo's assumptions.

39 posted on 03/06/2004 6:27:58 PM PST by neutrino (Oderint dum metuant: Let them hate us, so long as they fear us.)
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To: neutrino
If you're going to show graphs, you really need to title them so we know what they are supposed to be saying. I presume the first one is net trade surplus/deficit.

There are several problems with historical measurements of that. First, it does not usually take trade in services into account, just trade in goods. The US is the world's biggest exporter of services. So that accounts for quite a bit of the gap.

Then there's the fact that if you add everyone's trade surplus/deficit in the world up, you should end up with zero (after all, there's no trade with the moon). You don't because governments fudge the numbers toward the deficit side to scare gullible people into believing that government should "take action" because the "private sector has had market failure" or some such nonsense.

Finally, if trade surpluses are so great, then Japan ought to be the healthiest economy on the planet. They ran large trade surpluses for a couple of decades, starting in the seventies, due to their protectionism. What did it get them? One of the poorest performing economies on the planet in the last fifteen years. (Note that I brought up Japan earlier, and you conveniently ignored it. I presume you'll probably do so again, because it is the most glaring example of the defects in your argument.)

So trade surplus/deficit, in and of itself, doesn't tell us anything. The questions that matter are: What is the growth rate? What is the unemployment rate? On both those scores, we are doing fine.

The second graph documents that fact that we get lots and lots of foreign investment. This is great news! It means we are the best place in the world to invest your money. We get the benefit of investment from all over the world, which helps our growth rate (because investment fuels growth - Econ 101).

The fact that we pay that interest on that investment is inconsequential to the overall economic picture for a couple of reasons. First, the increased growth from the investment means that we ahead on net, even after paying the interest (consider the interest a dividend of sorts on the investment). Second, that money has to come back to us somehow. Else, we have sent computer bits or pieces of paper to foreigners for absolutely nothing.

46 posted on 03/06/2004 7:21:55 PM PST by Joe Bonforte
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