Posted on 11/29/2007 7:11:00 PM PST by LowCountryJoe
Pat Buchanan's recent attempt to diagnose the sinking dollar demonstrates that ignorance of basic economics is not limited to the Left. Buchanan points out the plummeting value of the dollar relative to other currencies and major commodities such as gold (up 24% this year) and oil (up over 50% in 12 months). He then declares that "the prime suspect in the death of the dollar is the massive trade deficits America has run up" to "maintain her standard of living and to sustain the American Imperium." This diagnosis offers a tantalizing glimpse of the truth, yet shatters it with protectionist bromides.
First, let's deflate the protectionist rhetoric. What are trade deficits and surpluses?
A trade deficit means that in sum, American dollars are going abroad in exchange for foreign goods. Consider what this means. If foreigners never cashed in those dollars, Americans would essentially be getting foreign goods free of charge. Protectionists like Buchanan condemn this as "borrowing," but this is actually a form of investment — both in US industry and in US dollars. Foreigners have been investing in the United States for decades for two primary reasons: the superior returns due to the growth potential of American capitalism, and the dominance and (relative) stability of the US dollar, which made them useful as a means of exchange apart from their purchasing power of US goods. Americans are not living "beyond our means," as Buchanan claims; we are simply a more profitable investment, with a more stable currency, than the foreign investors' own countries.
A trade surplus on the other hand, means that in sum, US goods are being sent abroad in exchange for foreign currency. A trade surplus is a form of investing in other countries, since (fiat) foreign currency is only worth the foreign capital it can purchase. This happened after World War II, when the United States sent capital to shattered foreign economies and reaped returns as the value of their economies — and thus their currencies — grew.
So are trade deficits preferable to trade surpluses? In a narrow sense, yes. A nation that has strong economic prospects will attract foreign investment and therefore experience trade deficits. Conversely, when the domestic economy is stifled by regulations and monetary manipulations, investors will send their savings abroad and their country will run a trade surplus. (This explains why the US deficit has consistently fallen during recessions and grown during periods of expansion.) However, the broader lesson is that trade inequalities indicate the net flow of foreign investment, and the benefit of the inequality is ultimately validated by the profitability of those investments. Profitable foreign investment results in GDP growth and positive currency valuations, whereas unprofitable foreign investment erodes economic growth and devalues the currency of the investment's recipient. Could a sufficiently large and wasteful investment be responsible for the current dollar crisis?
A large part of the US trade deficit comes from the bonds (treasury securities) the US government has been selling to foreigners to finance the growing federal budget deficit. The value of these bonds depends on both the strength of the US economy and the loss of value caused by expansion of the money supply. When the US Treasury sells bonds to individuals, it diverts savings from private investments; this diversion is a form of taxation. When it sells bonds to the Federal Reserve, it exchanges bonds for newly created dollars, which is a form of monetary expansion (inflation). Additionally, when the government sells debt to foreigners, it creates a liability against the US economy. Foreigners buying deficit debt are in essence betting on the ability of the government to provide a return on the investment in the form of positive economic growth. What happens when the investment fails to turn a profit?
The primary reason for the $9 trillion federal deficit is the so-called "War on Terror," including the spending on Homeland Security, Afghanistan, and Iraq. Unless you believe these funds averted an economic meltdown due to terrorism, these funds represent a near-total loss. Tanks, bombs, and bureaucratic paper pushers consume vast funds, yet they contribute nothing to the economy, aside from benefiting military contractors. This economic destruction is one of the biggest reasons for the declining dollar. (Perhaps the major reason is the credit bubble created by the inflationary policy of the Fed since the early 2000s, which is now collapsing and making the economy less attractive as an investment target.)
The falling dollar will make it increasingly expensive for the US government to accumulate more debt. Eventually, it will be forced to either cut spending, explicitly shift costs to US citizens by increasing taxes directly, or (most likely) increase taxes through higher inflation. Investors have already anticipated this and flocked to other currencies and to gold as a refuge. The slide will likely continue until some kind of budget reconciliation is evident.
The overwhelming response to the problems created by the government's financial irresponsibility has been to call for more protectionism, as Mr. Buchanan is doing. Because it creates barriers to trade and investment, protectionism makes the US dollar less valuable to both foreign consumers and investors, thus accelerating the fall of the dollar. Investors have certainly anticipated this as well — but don't blame them for betting on the gullibility of Americans to the protectionist rhetoric of economic ignoramuses like Paul Krugman and Pat Buchanan.
If we can avoid the protectionist trap and reconcile the budget, the falling value of the dollar will eventually attract investors and stimulate exports. As the developing world becomes richer and freer, the US dollar is unlikely to enjoy the unchallenged superiority it once had, but maturing foreign markets will attract products and services designed in America, and we will once again become a recipient of foreign investment. Free markets and American ingenuity made the United States the greatest economy in the world. They are the only way we will keep it that way.
Lord save us from Marxist “free traders” who wish to abolish private property! ROTFLMAO
Toddster, I think you pointed it out first on this thread, but have you noticed that Hunterite can take a look at a chart produced by the Heritage Foundation and yelp about “The Art of Statistical Manipulation (co-authored by the Democratic Party and Libertarian Party),” yet post charts from the Economic Policy Institute without blinking?
Toddster, I think you pointed it out first on this thread, but have you noticed that Hunterite can take a look at a chart produced by the Heritage Foundation and yelp about “The Art of Statistical Manipulation (co-authored by the Democratic Party and Libertarian Party),” yet post charts from the Economic Policy Institute without blinking?
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You evil free-traders. Next time you post a godamn wage on a chart from F’ing 1929, don’t use nominal wages. Liars. Traitors. Manipulators. Deviants.
lol. You dweebs actually checked where I cut and pasted my graphs from? Haha, how pathetic.
I randomly went through google images using the keywords “real wages inflation” looking for charts.
No, what's pathetic is that you run to Google to support your arguments, and think you can get away with posting the first things you see.
Since you're new here (?), let me explain. since 1999, I've been making fun of Marx-quoting, class-warfare-embracing, economics-challenged, True Conservatives™. You see, as a free-market, Chicago School conservative, I enjoy the philosophical tussle.
In any case, you should probably learn (soon I hope) that if you propose to argue public policy with a bunch of data-junkies, you'd best make sure that your data comes from somewhere other than what is essentially a DNC think tank. Especially since you accuse other think tanks of authoring Democrat Party material.
That's what it boils down to, my friend. Your knee-jerk reaction to the Heritage data was to call them Democrats. Then you turn around and post Democrat data. If you actually knew what you are doing, I'd call you a hypocrite.
I really don't expect you to read it, though, much less understand what it would be trying to explain to you even if you did read it. But is this something that you should read? Absolutely! This is a must read if we are to put these charts of yours in their proper context. Especially after the very next comment you had made after you had posted these charts in post #250.
So, do yourself a favor, read what I've linked to before you think of posting these embarrassingly vapid wage charts again. You'll look stupid even more stupid if you do.
That’s what it boils down to, my friend. Your knee-jerk reaction to the Heritage data was to call them Democrats. Then you turn around and post Democrat data. If you actually knew what you are doing, I’d call you a hypocrite.
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Still doesn’t change the fact that you manipulate statistics. You post nominal wages instead of wages adjusted for inflation, expecting everyone to think that wages have increased 10 fold. Thats what we real Americans and real Republicans call, “evil.”
You Libertarians have never been a part of the Republican party, why don’t you just leave, rejoin the Democrats or stay in limbo. I really don’t care.
There's only two other FReepers that I've ever enjoyed seeing having a meltdown. Don't get me wrong, I've seen plenty meltdowns but I seldom enjoy it. For this to happen within your first month here, speaks volumes about your abrasive and ultra stubborn character. If you make it through December, I will be surprised...eventually you will piss enough people off and one of them is going to push for your removal. It won't be me, though. Whether you know it or not, you're helping the cause of economic liberty. If you were to get ousted from this forum, it would be an indirect loss for the free trade side.
I just read an interesting bit from a Senior Economist at the website of the Federal Reserve Bank of Minneapolis.
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“Americans have experienced steady, gradual improvement in their standard of living since nearly the founding of the country. Each aging generation has......ven the Great Depression was only a temporary, though traumatic, pause in this progress—income per person was 50 percent higher by 1949 than it had been in 1929....(not adjusted for inflation, manipulative liar)....Gross domestic product per person, one of the mostly widely cited proxies for standard of living, has nearly doubled since 1975.....(provided by scientific advancement, not traitor libertarian economists)...Other measures of national economic performance, such as personal income, compensation of employees and the amount of goods and services consumed, have also risen substantially....(not adjusted for inflation)....
Lie lie lie, manipulate, lie, suck American prosperity away for a cheap buck.
Where did I do that? You are an idiot.
Hint: no extra time was needed to hunt down where you got you charts from. If you look below the vapid charts you posted, it tells us who the source is. This text information is part of the image you displayed. Are you always so careful? Does Duncan Hunter even know that you’re doing a fine job — almost singlehandedly — at keeping him a third-tier candidate for president? Yes, he should know by Monday after I e-mailed his campaign your post #213
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Well aren’t you full of yourself.
Dear Duncan Hunter Campaign Staffer, some dude on an internet forum (wimper) is saying this and that...
You Libertarians are losing, and you know it. Your new politically correct “N” word “Protectionism” won’t stick for much longer. And you know it.
You will become the politically incorrect, and you’ll probably go crawling on your hands and knees back to the Democrats, where you originated from.
(I’m a Paleo-liberal)
I’m a paleo-Conservatives. Remember, paleo-liberals lost the war.
Your campaign staff is making you look like an idiot on the internet.
You post nominal wages instead of wages adjusted for inflation, expecting everyone to think that wages have increased 10 fold.
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“Where did I do that? You are an idiot.”
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Post the graph again and I will show you, step by step.
Yeah, right after you give me a foot massage. How about just showing me?
Dear Duncan Hunter,
Your campaign staff is making you look like an idiot on the internet.
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Dude...dude...dude. I am not a Hunter campaign staffer.
Praise the Lord!
And speaking of lies; like the one you told in post #468, the GDP numbers from the graph that 1Rudeboy presented to the forum earlier in this thread, were adjusted for inflation.
This ought to be funny. Very funny!
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