Global 'Imbalances' and the Crisis [TRADE DEFICITS ARE GOOD FOR YOU]

Wall Street Journal ^ | JANUARY 11, 2010 | DAVID BACKUS AND THOMAS COOLEY

[Mase]

Here it is. It's clear from this information that, historically, our economy expands the most when our current account deficit is increasing the fastest. Bad news on the trade deficit often means good news for the economy (and bad news for people who think there is a direct correlation between budget deficits and the current account deficit).

LINK

[Mase]

there is a close relationship between the trade deficit and the budget deficit as many studies have concluded

Tell us about this close relationship in Japan and Germany where these countries sport huge trade surpluses every year but have to further increase their national debt year after year. Japan's national debt is almost 200% of GDP.

Why is it whenever I come across your postings on a thread you're always way in over your head?

[Toddsterpatriot]

Thanks Mase. That's some more info Will can ignore by sticking his fingers into his ears, closing his eyes and screaming lalala at the top of his lungs.

At least he still has his feelings (and a study about Pakistan).

[Will88]

Lol, got your tag team going now? You people are hopeless. This entire discussion has been whether or not there is a close relationship between the trade deficit and the budget deficit. There clearly is according to many studies, also common sense.

BUT, there is some disagreement on precisely what that relationship is. Some think the trade deficit influences the budget deficit, and others vice versa. Chicken or the egg. But the relationship does exist.

But your question does bring to mind one of Toddster's misunderstanding of the issue, and one of his feeble attempts to save face. Read very carefully.

A close relationship does not imply that the related items are of equal size.

There is a close relationship between your thumb and your body, and between a passenger on a 747 and the 747, and between a dog and a tick in his ear. But are those things of the same size?

Therein lies the answer to your confusion. A trade deficit and a budget deficit can be of vastly different size, and the budget deficit can be caused by many non-trade related decisions, re: spending and the general health of a domestic economy.

But there still a close relationship between the trade deficit and budget deficit because the results of many economic activities flow into the computation of both the trade deficit and the budget deficit, and many of those economic activities take place in the domestic economy, and also in the economies of trading partners who export to a given nation. Those factors establish a relationship whether large or small.

Toddster attempted to save face and change the subject by saying if the two deficits were of dissimilar size, then a close relationship did not exist. Size does not establish the close relationship, but the manner in which the two deficits are connected to the same type of economic activities, and how the results of those activities are reflected in both types of deficits, whether they increased or decreased the amounts.

You two seem to think one deficit must actually determine the other, whether positive or negative. Not at all. Many other factors can determine the budget deficit, no matter the size of the trade deficit.

Glad I could clear that up for you. And, the close relationship is well proven. All this junk you keep throwing up misses the point. And, again, the close relationship will not always determine what the other will be because so many other factors affect the budgets in particular.

[Toddsterpatriot]

A close relationship does not imply that the related items are of equal size.

I don't remember anyone claiming they had to be of equal size. I certainly didn't make that claim.

Toddster attempted to save face and change the subject by saying if the two deficits were of dissimilar size, then a close relationship did not exist.

I didn't say that either.

You two seem to think one deficit must actually determine the other, whether positive or negative.

That's your claim, when you said they had a close relationship.

I'll spell it out, because you obviously don't understand the actual dollar figures I posted.

If your claim of a close relationship were true, you would expect an increase in one would always lead to an increase in the other. A very large increase in one should always lead to a very large increase in the other.

Obviously, the facts are against your claim. If, as you admit, several other factors are much larger contributors to the budget than the trade deficit, you'd have a stronger leg to stand on if you said those factors had a close relationship.

Glad I could clear that up for you.