Wednesday, February 11, 2009

Trade deficit falls to six-year low

Be careful what you wish for!

As I have been saying all along, rich countries tend to run trade deficits and capital account surpluses. This is exactly what the U.S. had for many years and it grew not because of our profligacy, but because it was the desire of foreign nations to "net save" in U.S. dollars and achieve full output and employment by selling products to the U.S. even at the expense of the living standards of their own citizens.

The fact that the U.S. trade deficit is shrinking rapidly is not something to cheer, but a reflection of the fact that our policies are making us poorer and by corollary, making the rest of the world poorer as well.

Blame this on fiscal conservatives and policy that is driven by a gold standard mentaility. The idea that we can only prosper if others lose. It's terribly destructive and an idea the world basically got away from 200 years ago.

Read full article here.


googleheim said...

Example 1 : China
They save in U$D bonds with proceeds from exporting crap to USA at prices which undercut American manufacturers by devaluing their Yuan currency which makes their Aristcracy rich in dollars.

Example 2 : Japan
They saved in U$D during the 1990's and until recently with proceeds from exporting their electronics sold to the USA at prices which are accomplished with factories in China. Their aristocracy can do this, but their people had a lost decade. Their aristocracy promotes Kyoto while eating Whale meat priced on a gold standard.

3. Of course we need cheap stuff imported to increase our standard of living. However, how can we invest in our own debt to accomplish this ?

4. We need to import to support other countries and foster a global community. However, we need to save our money and invest in our own debt as well.

mike norman said...

3. By simply allowing the government to GIVE us the money to buy it.

4. We don't need to "support" anyone but ourselves. Other countries that spend in their own currency can sustain any level of demand necessary to achieve maximum output and full employment. What they CAN do is one thing; what they CHOOSE to do is entirely another.