Thank Goodness for Trade Deficits

TCS ^ | 3 DECEMBER 2004 | John Tamny

[Tennessean4Bush]

We have trade deficits. The sky is falling. The sky is falling. The sky is falling. The sky is falling. The sky is falling. The sky is falling. The sky is falling. The sky is falling. The sky is falling. The sky is falling.

[Moonman62]

Our national debt is now 5 point something of the budget and rising, not counting private bonds, such as mortgages etc. that are held by the Chinese and Japanese. And that consumer debt, acquired in the purchase of imported goods, is at an all time high.

If lenders want to send us money, let them. If we can't pay, they'll be the bag holders, and they know it. If they think we can't pay, they'll stop sending money and the imbalance will correct itself. You said yourself that you would pick our economy over any other. Our lenders are doing the same thing.

While the spending and borrowing going on in Washington is unethical, it's still not near the point to cause a financial crisis.

[Jew4GWB]

BUMP

[durasell]

That's fine for now -- but it can't go on forever. It's how it ends that is cause for concern.

[Moonman62]

Singapore ran a large account deficit a few years back and it corrected all on its own. The really big problems occur when the government tries to fix a problem that really isn't there.

[durasell]

You're comparing Singapore to the U.S.? I don't even know how to respond to that...

[Stratman]

This is one of the worst articles I have ever seen. At the heart of the author's argument is the following statement:

"If a country is buying more goods and services from the rest of the world than it is selling, the country must also be selling more assets to the world than it is buying."

Yes, the US is selling assets. The US is selling a vast amount of government securities to foreign central banks, who currently purchase about 40% of the government debt market. This is the only reason US interest rates are as low as they are right now.

These bond purchases make-up a large percentage of the difference in the trade deficit.

If these banks decide not to buy because they are already heavy in dollar assets (which both Japan and China are already) and switch to a competing currency (say the Euro), US interest rates will spike and we will be in big trouble very quickly.

[sixmil]

Without fail on these threads, someone comes out and says something like 'we win big in the end when we declare bankruptcy'. Is this a plank in the free trade ideology? If so, I suggest you head back to the drawing board.

[Moonman62]

Without fail on these threads, someone comes out and says something like 'we win big in the end when we declare bankruptcy'.

I'm not saying that at all, but it's the increased likelihood of not being paid back that makes lenders tighten credit.

[incubus]

We have been a service based economy for decades. Manufacturing has been going overseas as it naturally will do to the cheapest labor costs. What really counts is PRODUCTIVITY. We are the most efficient and stable economy in the world and thanks to the minimal role of government in the private sector we will continue to be so. Therfore foreign investment will continue to strong.

[sixmil]

Actually, I should just add this to my list of things you need to believe in order to believe in free trade:

1. Free trade wins big in the end by declaring bankruptcy!?
2. Workers are better off with low wages
3. The price of a good or service has nothing to do with supply and demand. Price is determined by how much it costs to produce the good or service
4. Dollars overseas are simply pieces of paper with no value, unless we are talking about the trade balance, then they can be used as foreign 'investment'
5. The savings from buying foreign goods is passed directly to the consumer
6. The price of labor is not determined by supply and demand
7. Running a deficit with your grocer is the same thing as running a deficit with China (nanoeconomics)
8. Money coming in from international tourists is good, losing tourist dollars is bad - this does not apply to trade, the grocer argument is a better analogy
9. There is a shortage of workers in America
10. We are near full employment

[the invisib1e hand]

thank you. the sky is not falling, after all.

[AdamSelene235]

For decades, the U.S. Dollar has been artificially propped up by foreign governments and central banks. The U.S. has even *cooperated* with such behavior by coordinating currency interventions.

Agreed. Which is why the current monetary system HAS TO GO. The economy should reflect the desires and efforts of THE PEOPLE not the pointy headed B@st@rds in Dee Cee or the Fed.

We're not quite there yet, however. The Dollar still isn't fairly valued.

I got your fair value right here, pal. ;-)

[fallujah-nuker]

rdb3 wrote "The United States most recently had a trade surplus in 1991. Unsurprisingly we were in a recession in 1991. The U.S. also ran surpluses during the Great Depression."

Actually the US ran trade deficit of -27.5 billion in 1991, the combination of a merchandise balance of -77.2 billion and a service balance of +49.7 billion. The current account balance had small surplus in 1991, due to foreign governments' reparation for U.S. military expenditures in the first Gulf War.

http://www.cbo.gov/showdoc.cfm?index=5722&sequence=0

[Toddsterpatriot]

You understand that we're sending money paper out and other countries are sending goods in, right? Our national debt is now 5 point something of the budget and rising falling, not counting private bonds, such as mortgages etc. that are held by the Chinese and Japanese. And that consumer debt household net worth, acquired in the purchase of imported goods, is at an all time high.

[Toddsterpatriot]

We have trade deficits. The sky is falling. The sky is falling. The sky is falling. The sky is falling. The sky is falling. The sky is falling. The sky is falling. The sky is falling. The sky is falling. The sky is falling.

You forgot one thing, Bush's fault!!!

[durasell]

We can only hope you're right.

[FITZ]

Add that government spending on all the many social programs for those unable to work is at an all time low!

[Toddsterpatriot]

We can only hope you're right.

No hope involved, only facts.

Households' Net Worth Rose

[sixmil]

Americans' net worth is almost totally their houses, so you can only continue to quote this while housing is still in a bubble. Should that bubble pop, this same figure will really start to work against you. You may want to think up another defense so that you have something when this canard falls off.