To all the chicken littles who are upset about the trade deficit, I'll send you another copy of the memo since you didn't get the first one:
We got rid of the gold standard 70 years ago. Wealth is not leaving the country. All you can do with those dollars is either invest them in America or buy American goods and services. Otherwise foreigners are giving us cars, consumer electronics and sneakers in return for little piecs of paper with pictures of dead presidents on them.
Otherwise foreigners are giving us cars, consumer electronics and sneakers in return for little piecs of paper with pictures of dead presidents on them.
Thats the way I see it. Eventually all those dollars have to come home and be spent here. Same with sending billions of dollars to mexico...they eventually have to come home. But then maybe I see things too simply.
Jib,
You're mistaken, and so is Tamny.
The current account deficit, of course, is a liability on our economy, as is the misunderstood capital account.
It is wholly true that a current account deficit can be a sign of a healthy economy, but it is not a decidedly favorable condition, as Tamny asserts.
Frankly, I'm surprised that Kudlow, econ editor of NRO buys into this. It's one thing to be a supply sider, another to make wild assertions.
These disequilibrious conditions must correct. The problem is we don't know when. Much more important is that in most cases (under floating exchange regimes), corrections have been orderly, not precipitous as under fixed regimes. Still, the Asian economies hold vast dollar reserves. Any decision to revalue, especially by China, will least to a faster, more precipitous decline.
Last, but not least, this type of information gets used by investors, who are fooled by the bold assertions of a man like Tamny. It's bad information, and shouldn't have made it to the NRO.
I love to see articles explaining this concept so well. Intuitively I have felt [that good liberal word] that trading green pieces of paper for goods has been a win-win on the world economic stage. I look at Canada, which always has a trade surplus, and compare their economy with ours. They mostly sell natural resources - which can be measured in dollars and volume. We mostly contribute increasing technology to the world which cannot really be placed on the balance sheet anywhere.
All I know is that we are a very wealthy country and a productive country.