Trump’s Cross of Gold — Barry Eichengreen

US President Donald Trump wants to compress the United States trade deficit and enhance the competitiveness of domestic manufacturers by using tariffs to raise the price of imported goods. And the fixed exchange rates he needs to achieve that goal are the real reason behind his nomination of Judy Shelton to the Federal Reserve Board.... 

Project Syndicate
Trump’s Cross of Gold

Barry Eichengreen | Professor of Economics at the University of California, Berkeley, and a former senior policy adviser at the International Monetary Fund

On the Economy — Historical U.S. Trade Balance and Industrialization

The U.S. has run a persistent trade deficit over the past few decades, similar to much of the 19th century. The shifts in the U.S. trade balance over time seem to correspond with U.S. industrialization in a global setting, according to a recent Economic Synopses essay. 

“We hypothesize that industrialization leads to structural changes that cause a nation’s comparative advantages to change relative to those of other nations,” wrote Assistant Vice President and Economist Yi Wen and Research Associate Brian Reinbold.

“Since countries trade based on their comparative advantages, we would expect to see long-term changes to a country’s trade as it enters a new stage of development,” they added....

The interesting point from the MMT POV is that when a country is growing it needs to import more than export and runs a chronic trade deficit, meaning that the country is receiving "winning" in real terms of trade. Then, after industrialization and increasing comparative advantage in manufactures, the country begins to run chronic trade surpluses, meaning that it is saving on other countries currency one balance and "losing" in real terms of trade. Then, in the third stage, the developmental process reverses, the country runs chronic trade deficits and begins "winning" again in real terms of trade.

This is opposite the conventional interpretation of winning and losing in trade competition.

On the Economy — FRBSL
Historical U.S. Trade Balance and Industrialization

Brian Romanchuk — Exports And The Cycle

Not all "automatic stabilisers" in the economy are due to government policy; there are patterns of private sector behaviour that tend to act in a counter-cyclical fashion. The role of the external sector is an important stabiliser (at least most of the time). This article is a basic primer on the subject....

Bond Economics
Exports And The Cycle
Brian Romanchuk

Timothy Taylor — Some Facts on Global Current Account Balances

Maybe the trade war with China isn't actually about MAGA at all, but just economic warfare against a rising competitor. If trade surplus are so "unfair," why is the focus not on Germany given the figures, enquiring minds want to know. Or, do Donald Trump and his economic team not realize this?

Conversable Economist
Some Facts on Global Current Account Balances
Timothy Taylor | Managing editor of the Journal of Economic Perspectives, based at Macalester College in St. Paul, Minnesota

Bank Underground — A prince not a pauper: the truth behind the UK’s current account deficit

Bank of England — Bank Underground
A prince not a pauper: the truth behind the UK’s current account deficit

Rachana Shanbhogue, Macroprudential Strategy and Support Division, and Stephen Burgess, Macrofinancial Risks Division

Cullen Roche — The Balance of Payments in the USA

Why the US works with respect to internal trade among states while the EZ doesn't.

Pragmatic Capitalism
The Balance of Payments in the USA

Cullen Roche

Neil Wilson — Savings are an Export Product

New economic thinking about savings, international trade, and open economies.

Modern Money Matters
Savings are an Export Product
Neil Wilson

Debate: Can China Survive Trump? — Michael Pettis and Tom Orlick

Orlik: President-elect Donald Trump's talk of tariffs and the rise of populist nationalism evident in the Brexit vote are warning signs of a coming storm. At this point, though, there's no way of knowing how severe the storm will be. The history of U.S.-China relations shows tough talk on the campaign trail rarely translates into action in office.
Trump has already backed away from other pledges. It's possible tariffs won't materialize. Indeed, a fiscal stimulus that puts more money into American shoppers' pockets could actually boost demand for China's exports. In Europe, anger is focused more on immigrants than trade. Absent sweeping tariffs, our forecast is for exports to grow about 5 percent in 2017, reversing the contraction in 2016.

Pettis: You may be right, Tom, but the global economy continues to be distorted by huge trade imbalances. The worst offender is Germany, whose record-breaking surpluses just keep growing. Meanwhile, Japan is running large surpluses again after five years of deficits. These and other large surpluses are driven not by rising productivity, but rather by structurally weak domestic demand, and in most cases, this weak demand isn't being addressed except by being exported. China is one of the few surplus countries that has actually improved domestic demand, driving its current account surplus down from 10.1 percent of GDP in 2007 to under 3 percent today. In absolute terms, however, China's surplus is barely 10 percent below its previous peak.

The problem is not China as a US competitor, but rather US "partners" Germany and Japan.

Seeking Alpha
Debate: Can China Survive Trump?

Michael Pettis and Tom Orlick

Brian Romanchuk — Trade And Growth

This article is a brief discussion of the relationship between growth and trade deficits in the United States. The previous two decades saw a marked deterioration in the U.S. trade balance, as depicted in the chart above. As a result, trade acted as a counter-cyclical brake on growth. One interesting property of the current cycle is that the trade deficit has been relatively stable when compared to that experience....

Bond Economics
Trade And Growth
Brian Romanchuk

Merijn Knibbe — The 10% of GDP Greek *surplus* on its services trade balance

Yesterday, as part of an attempt to raise the level of discussion about the Eurozone problems, I spent the better part of ten minutes to download a 98 page Excel-file from Eurostat containing data about the last sixteen years of European Union macro economic history. It turns out that Greece has a surplus of almost 10% of GDP on its ‘international trade in services’ account (among other things: shipping, tourism). That’s a lot by whatever standard and surely when compared with 2% of GDP German deficit. In the EU it is only topped by tiny Malta, Cyprus and Luxembourg. It is caused by the fact that Greece is not only home to one world-class economic sector (tourism) but even to two (the other being shipping), which is a lot for a country the size of Greece.… 

But the point: There is a discussion going on about the ‘competitivety’ of countries. Often, current account data are used to prove that countries are ‘competitive’ or ‘uncompetitive’. Which is a bogus discussion. Large current account deficits (or surpluses) are not a sign of ‘competitivety’ of a country but a sign of unbalanced macro-economic spending in the country itself as well as in its trade partners.…

Real-World Economics Review Blog
The 10% of GDP Greek *surplus* on its services trade balance
Merijn Knibbe
ht Random in the comments

Dirk Ehnts — Goodhart on pegged exchange rates

One wishes that the creators of the euro would have read this text-book before the creation of the euro. The TARGET2 system has worked properly, but as mentioned by Goodhart “such financing of itself does nothing to correct the imbalance caused by a divergence between the pegged and the ‘equilibrium’ exchange rate”. The imbalance bothers not because it has to be financed – TARGET2 takes care of that – but because employment is low in those areas where the ‘equilibrium’ exchange rate is not correct.

econoblog 101
Goodhart on pegged exchange rates
Dirk Ehnts | Berlin School for Economics and Law

Merijn Knibbe — The 10% of GDP Greek *surplus* on its services trade balance

Yesterday, as part of an attempt to raise the level of discussion about the Eurozone problems, I spent the better part of ten minutes to download a 98 page Excel-file from Eurostat containing data about the last sixteen years of European Union macro economic history. It turns out thatGreece has a surplus of almost 10% of GDP on its ‘international trade in services’ account (among other things: shipping, tourism). That’s a lot by whatever standard and surely when compared with 2% of GDP German deficit. In the EU it is only topped by tiny Malta, Cyprus and Luxembourg. It is caused by the fact that Greece is not only home to one world-class economic sector (tourism) but even to two (the other being shipping), which is a lot for a country the size of Greece....

Real-World Economics Review Blog
The 10% of GDP Greek *surplus* on its services trade balance

Merijn Knibbe

Also

The sting in the tail: there will be another undemocratic ‘federal’ institution, an investmentbank, backed by the ECB. Maybe this institution might, to an extent, make up for the lack of fiscal policy on the Eurozone level, at least by restoring part of the monetary transmission channel, i.e. provide a level playing field when it comes to financing projects in the different countries in the Eurozone. While it might also make up for the present lack of government investment in at least some countries. And it might make the present, asset price increasing, kind of QE superfluous. My idea: the European Parliament will have to get large supervisory powers over this bank....

Is an ECB funded backed a better idea than QE? Varoufakis thinks so.

Michael Pettis — Are we starting to see why its really the exorbitant “burden”

This may be excessively optimistic on my part, but there seems to be a slow change in the way the world thinks about reserve currencies. For a long time it was widely accepted that reserve currency status granted the provider of the currency substantial economic benefits. For much of my career I pretty much accepted the consensus, but as I started to think more seriously about the components of the balance of payments, I realized that when Keynes at Bretton Woods argued for a hybrid currency (which he called “bancor”) to serve as the global reserve currency, and not the US dollar, he wasn’t only expressing his dismay about the transfer of international status from Britain to the US. Keynes recognized that once the reserve currency was no longer constrained by gold convertibility, the world needed an alternative way to prevent destabilizing imbalances from developing. 

This should have become obvious to me much earlier except that, like most people, I never really worked through the fairly basic arithmetic that shows why these imbalances must develop.…

China Financial Markets
Are we starting to see why its really the exorbitant “burden”
Michael Pettis | Professor of Finance at Peking University’s Guanghua School of Management

Marshall Auerback — The ECB Agrees With France: The Euro Is Too High

When neo-mercantilism is the model, then currency devaluation bestows competitive advantage in trade, and currency appreciation undercuts exports upsetting the business plan.

Focusing on the euro, ECB President Draghi pointed to large capital outflows out of Russia of about $160bn. Some of this may have gone into euro denominated investment, increasing unwanted upward pressure on the currency.

Macrobits by Marshall Auerback
The ECB Agrees With France: The Euro Is Too High
Marshall Auerback

John Carney — The Great Debate Over a Strong Dollar

Exports are a cost and imports are a benefit in real terms of trade.

We still want the stuff we send out to the rest of the world to be worth less than what we take from the rest of the world. If having a floating rate, nonconvertible fiat currency that is used as a reserve currency by central banks around the world helps us accomplish this goal, that's a benefit not a cost.

You don't have to be a free market fundamentalist to see this point. Even if you think that it's important to preserve, say, manufacturing jobs in the United States, your argument doesn't have to turn on the balance of trade. But it is weird to see the side most associated with free markets, the gold standard folks, relying on this kind of thinking.

CNBC NetNet

The Great Debate Over a Strong Dollar
John Carney | Senior Editor

Greg Palast — Hugo Chavez vs "The Network"

Third World nations are not supposed to keep the dollars paid to suck out their oil and mineral blood. For every dollar US consumers pay the Saudis for their oil, about $1.24 is given back as Saudis return the funds by purchasing US Treasury debt or hunks of US banks, CitiCorp for one.

In 2005, the US spent $227 billion in Latin America, sapping its properties and resources. But the money turned right around and, added to the funds sent to Miami by Latin America's elite, immediately became a $379 million loan to the US Treasury and financiers.

Argentina leant the US at 4 percent interest, then had to borrow its own money back at 16 percent – the whirring wheel, this grinder, left school teachers in Buenos Aires hunting in garbage cans for food. Riots followed and – in Peru, Ecuador, Argentina and elsewhere – this led to tanks in the street, currency collapse, crisis and the “rescue” by the IMF. Rescue meant forcing the mass sell-off of state industries, from oil to water systems, to the crushing of labour unions and to swallowing the whole bottle of poisons kept by the elite of the Northern Hemisphere for just such occasions.

And that was the plan. Literally. I've held the proof in my hands, about five thousand pages of financial agreements, all labelled “confidential” and “not to be distributed except by authorized persons”, which bore benign titles like “World Bank Poverty Reduction Strategy, Argentina.”

Why would the IMF, World Bank and the bankers not want to make their wonderful plans for reducing poverty public? It was for the same reason the finance ministers who signed the documents didn't even tell their own presidents: they were in fact “reduce-to-poverty” plans, complete resource surrender.

Greg Palast
Hugo Chavez vs "The Network"

Neoliberalism, neocolonialism, and neo-imperialism at work.

Andrea Terzi — Do exports LOWER a nation’s living standards?

In the U.S. and (particularly) in euro countries, policies aimed at stimulating exports are (sadly) considered an effective response to lagging growth (U.S.) and recession (Euroland). Viewing a net export balance (i.e., an international trade surplus) as an economic virtue and a growth engine is a relic of Mercantilism that has had a powerful comeback, not coincidentally, with the abandonment of fiscal policy as a counter-cyclical tool.

MEPOC — Mosler Economic Policy Center
Do exports LOWER a nation’s living standards?

Andrea Terzi | Professor of Economics at Franklin College, Lugano, Switzerland

Warren Mosler — yen tailspin?

With Fukushima down, Japan needs to import more oil, putting pressure on the yen.

The Center of the Universe
yen tailspin?
Warren Mosler