Hooray for America's Trade Deficit

I'm still quite upset by the fact that Ohio sells far more products to Texas than they buy. Pisses me off. Goddamn Ohio.

The "trade war with Canada" threatened by Clinton's posturing over NAFTA is incredible, and anyone familiar with trade disputes knows it. Clinton only "demands" NAFTA revisions that Canadians already want, revisions that Clinton's political opponents in the U.S. oppose more than Canada's state trade negotiators (the folks with whom Clinton would discuss "free trade").

Beneath the vague, political chatter, talk of NAFTA is always about managing trade, and the various proponents of "free trade" typically avoid the substantial issues, i.e. the particular restraints of trade they prefer over others. Buchanan at least is honest enough to reject the chatter altogether.

"Trade Deficit." Anyone smell an oxymoron?

Martin:

I didn't figure you for an isolationist.

I'm not an isolationist. If it were up to me, anyone from Canada could move to the U.S. and apply for my job tomorrow, but NAFTA doesn't have this effect. It does globalize entitlements that were previously less global.

My favorite is when someone (e.g. Lou Dobbs) is simultaneously upset about both our trade "deficit" and about American firms that invest overseas.

Such people clearly don't understand they can't have both a net investment inflow and a net trade outflow. It is mathematically impossible.

Such people clearly don't understand they can't have both a net investment inflow and a net trade outflow. It is mathematically impossible.

I understand this analysis, but the specifics of what crosses borders is certainly relevant. I don't buy the idea that foreign central banks and others "invest" in the U.S. when they purchase entitlement to tax revenue from the U.S. Congress, and I don't buy the idea that foreign producers "invest" in the U.S. when they buy some other statutory monopoly sold to some U.S. entity. The devil is in the details.

Can some one tell me where those investment surpluses are?

Lonable funds with very reasonable interest rates for American borrowers, shares of stock in American companies, properties owned by foreign interests which get rented out to American tenants, or foreign owned plants and other types of businesses that employ American workers.

These have all been spelled out for you before on other threads. Perhaps this time you'll committ them to memory and stop complaining about the trade deficit known by its other name: the investment surplus.

Now, will you tell me a little more about your optimism, Doctor?

Buchanan said that $1,400 bn are used as reserves. The funds China gets for selling the socks I'm wearing underpin the yuan. Doesn't look like those dollars are coming back here to be invested in America. Besides the Federal government is picky about what the chinese government can buy here.

Hmmmmmm,

"Doesn't look like those dollars are coming back here to be invested in America. Besides the Federal government is picky about what the chinese government can buy here.

Posted by: Kent Gatewood | Mar 8, 2008 9:22:43 PM"

Let's look at that:

China flows dollars into the Clinton 96 presidential campaign and after victory, Clinton flows super computer and missile guidance technology back to China. Appears to me as if free trade exists

I would think that if we send dollars to China to buy goods then it deosn't matter what the Chinese does with those dollars, use them in recip trade, use them to buy stuff from South America, or sit on them, ultimately the only place in the world those dollars can be redeemed is here in the USA.

Perhaps it is a simple view but to me the greatest value for the Chinese would be to turn around and buy something in America or produced by America, such as a democratic president or democratic New York senator.

Last of all, no rational argument can be made for the Chinese to have billions in USA dollars and be working to reduce their value? Anyone who thinks that is saying they think that the Chinese are totally stupid, and outside of some 60 years of rabid communism there is no evidence that in business they can't hold their own. After all they got a US President and senator really cheap.

"Lonable funds with very reasonable interest rates for American borrowers…" lowcountryjoe

Wow… to be able to write this as if you're to be taken seriously while we're in the middle of a massive sub-prime and general credit crisis. Whatever you say LCJ.

, …shares of stock in American companies,…"
lowcountryjoe

Eh hemm!

"…properties owned by foreign interests which get rented out to American tenants, or foreign owned plants and other types of businesses that employ American workers."
lowcountryjoe

Foreigners are buying our property and our companies and we get to rent it and work for them???……Do you know the way to serfdom…i've been gone so long I could go wrong? Optimism is GREAT when tempered with realism. Ignorance should likewise not be a reason to celebrate blind optimism. A mouse is very optimistic as it bites into the cheese.

Muirgeo, do you ever stop and ask yourself if it's even remotely possible that you might be wrong? I'm guessing you have no formal training in economics. I recall that in another thread you mentioned you're a doctor. Would you even give the time of day to an economist who diagnosed a patient and then proceeded to counsel a particular treatment regime? I hope not.

Why does every Tom, Dick and Harry think he can spew off about the economy without ever reading a single thing that's ever been written about it?

Adam,

I've read enough to understand that the great economist from Smith to Ricardo and Malthus, Mill, Marx, Marshall, Schumpeter, Keynes and Friedman never came to any grand conclusion about how best to run the economy.

Yeah Adam I could be wrong but their are plenty of modern day well known professors of economics who have some very significant questions on the details of our trade agreements. Considering the current state of the economy 15 years into our trade agreements and relative deregulation of our markets have YOU every considered you might be wrong. Why is the economy doing so bad when free trade and deregulation are supposed to be doing us so much good. And why should any rational human being ignore the fact of all the increase productivity going to the people at the top. That's a fact and all the indications tell me it's got a lot to do with how the game is set up and very little to do with who is productively contributing to society and the economy. And the simpleton idea that Smith's principals apply to our current complex economy is very suspect to me.

Murthaduck,

I commented on the closest thing to 'legitimate' in your post.

You have so many questions outstanding on this blog, that for you to accuse ANYONE of ducking reasonable discussion is absurd and hilarious.

Sam, Vidyohs, Python, Methinks, LCJ, Randy, Russ, yours truly, and countless other opponents of the dictatorship of the proletariat that you yearn for have countered your socialist tripe with substance time-and-again throughout the threads of this blog.

You are a helium-breather. Your mind cannot comprehend substance.

brotio – helium breathers are underrated. Don't diss it until you try it!

This is hilarious:

"we're in the middle of a massive sub-prime and general credit crisis"

"as to weather some financial trickery occurs when free trade goes"

"Their models don't work and for that reason do not exist"

"what we have is in any way free trade as opposed to a morass of rules and regulations specifically set up by those in power to further their grip not by competing fairly but by controlling markets"

The rantings of a lunatic at 5 A.M. You would think that that nurse Ratchet would have upped the dose of thorazine so the poor guy could get some sleep!

Buchanan said that $1,400 bn are used as reserves.

Those reserves are US gov bonds. China earns interest on these. But, they have to issue their own bonds to finance the purchase of the US Bonds. Right now China is losing money on their recent reserve purchases, because their rates are higher than the US bond being purchased. China may get hurt more than us if this unravels.

The rantings of a lunatic at 5 A.M.

In muirschizo's defense, he is on Vacaville time…some three hours before us. Perhaps its the thorazine mixed with the methane mixed with the battery emmissions from all those electric cars and their kool-aid drinking owners.

Those reserves are US gov bonds. China earns interest on these. But, they have to issue their own bonds to finance the purchase of the US Bonds.

China need not sell its own bonds to finance the purchase of U.S. bonds. It can sell its currency. U.S. demand for Chinese goods is great, so the exchange of dollars for yuan is great. Most of the currency exchange occurs through the Chinese monetary authority, because China sells yuan for dollars below the market to fix the price of the yuan in dollars. In the process, China accumulates dollars and buys U.S. Treasury securities with dollars while U.S. interests purchase Chinese goods with the Chinese currency.

China has an extraordinarily high saving rate, reportedly as high as forty percent, compared with a U.S. saving rate of roughly zero percent. This high domestic saving rate probably accounts for most of the sale of Chinese state securities, since the Chinese buy their own state securities and not U.S. securities.

So China sells yuan for dollars, and Chinese authorities purchase U.S. Treasury securities. U.S. buyers of yuan exchange them for Chinese goods. Chinese recipients of the yuan exchange them for Chinese state securities.

That Chinese state securities yield a higher interest rate than U.S. state securities makes little difference, because Chinese authorities tax their own resources to pay this interest. They don't pay it with interest earned on U.S. securities. To do so, they must exchange the dollar interest for their own currency, but they corner the market on the exchange of dollars for yuan themselves, so they'd be exchanging this dollar interest for yuan with themselves.

The Chinese hold U.S. securities as a consequence of the fixed exchange rate which is part of a mercantilist trade policy. They accept losses on U.S. securities, because these losses are the price of increasing their share of U.S. markets, and they're willing to pay the price.

If the U.S. may simply stop purchasing so many Chinese goods at some point and begin producing the same goods domestically or purchase them elsewhere, then I don't worry about the Chinese accumulation of U.S. Treasury securities. Basically, they give us discounts on everything they produce, and we give them paper entitling them, at best, to future purchase of our agricultural products as more Chinese resources leave agriculture.

On the other hand, if we're selling the Chinese and others exclusive rights to produce goods we consume, I'm not so sanguine about the prospects. The U.S. is a leading economy. We dedicate more resources to the bleeding edge. It's called a "bleeding edge" for good reason. Most new business models fail, because planning doesn't create success. A process more like natural selection occurs.

If we're selling exclusive rights to "businesses processes" and other vaguely broad categories of production (and we are), we aren't selling the failures. We're only selling the successes, and the earlier we sell them, the less we earn from them, because their future value is less certain earlier and their current value is correspondingly low.

The less sanguine theory is that we're selling these entitlements early presently, because an unusually large proportion of salesmen near retirement. People nearing retirement trade growth for income.

The Fed recently stopped reporting M3, because (according to skeptics) M3 is rising rapidly. It's rising rapidly largely because of large denomination CDs (which don't contribute to M2). The volume of money in these CDs is rising, because many investment dollars seek income over growth at this time.

The growth of M3 doesn't imply that we're selling more long-term business success cheap for short term gain (to invest the gain for income), but it seems to indicate a similar process at work.

The trade deficit is not a "capital surplus." We may have a capital surplus, but you can't tell by looking at the trade deficit figure.

Capital is defined as "cash or assets capable of producing future income." If you're just looking at cash, then the US annually exports about as much as it imports, so that's a net wash. So, you have to look at the nature of the goods flowing back and forth.

I suggest that if most of what's flowing into the US is, say, Happy Meal toys, then, from a "capital" standpoint, we do not benefit nearly as much as we would if it were laboratory equipment, computers and such. (You can make a similar comparison for outflow — are we shipping productive capacity overseas or just stuff?)

The trade deficit is meaningless; what matters is what we get in return.

have some very significant questions on the details of our trade agreements.

Theory of relativity:

It is better to have restricted (NAFTA) trade rather than no trade.
It is best to have FREE trade rather than restricted trade.

muirgeo,

Would it be fair to say that your fear is not in the fact that foreign money invests in America it's that the foreigners who happen to invest in America might exercise command and control over their assets to the detriment of America?

Posted by: babinich

My fear is that as is playing out before us trade as set up is simply a way for more and more money to be concentrated among a smaller and more powerful elite.

If nothing else please admit we hopefully have the same fear. That being, concentration of power among a few individuals who control the rest of us.

Most here fear it from the perspective of concentrating power through government entities while I fear it….
well actually I fear BOTH concentrations of "private and public power. " Further rarely does private power gain its strength without use of the public sector.

People like to call me a socialist because it makes them feel better. In fact most don't even bother to ask the details of the things I believe. Many of the things I believe would weaken the government not strengthen it.

It's BS that the issues I raise are not grounded in some of the views of the worlds best economist with what little I know of them. But I have studied many and I am learning more all the time.

For instance the father of comparative advantage, David Ricardo, I think, would hardly agree that our trade system is set up in a proper fashion. In fact, pitting the Americvan worker against the child laborer or the communist laborer results in an absolute advantage that distorts the effectiveness of true free trade.

As I understand it for free trade to work capital should not cross borders, trade should be generally equal and employment should be close to full. None of those conditions are met in the current situation.

So don't argue with me I'm only repeating the ideas of the great economist David Ricardo.

In fact most don't even bother to ask the details of the things I believe.

Because you offer up your beliefs on a regular basis. And you condradict yourself more often than most people on this forum do. Some contradiction is understandable and is usually cleared up by the people who do it. You, on the other hand, are all over the place and you do not clear these things up.

Many of the things I believe would weaken the government not strengthen it.

No way. There's no way in hell that you wrote that and believe this. I want examples. I want you to pick a persona and stick with him/her during the answering/example giving of this issue THAT YOU RAISED. No ducking this time.

We've all been muirgeo'd. Why do we persist in punching at the fog?

Many of the things I believe would weaken the government not strengthen it.

No way. There's no way in hell that you wrote that and believe this.

Posted by: lowcountryjoe

LCJ,

Would you say that George W Bush has opened up our government? Would you agree he has concentrated the power of the executive in a significant way. Now of course I hate the man with passion but my argument is easily generalized

If it was up to me the day Obama becomes president I would want every official communication he makes to be recored and posted real time for all to see. No private meetings concerning our governance except for the most secure of issues. This would go for every government official/ I'd hold them to the highest of scrutiny and punish them severely when they abused the public trust. They'd not get to classify every single document they want. I make a system where whistle blowers would be free to have instant access to a public broadcast real time to air issues of abuse. They would get to choose WHICH press people and when they get to answer questions. There would be regular press briefings and the questions would come from all the people of this country.

The idea that a guy like Dick Cheney could hold our energy policy meeting in private is absurd beyond belief.

With out a doubt by my rules the governments power and ability to be bought would be markedly decreased. And even though I might support greater degrees of public service and support for proven things like early child education and health care the system would be so efficient and transparent it would be easily supported and would ultimately be a boom to our economy by maximizing the greatest resource of all….human capital. The current system is very uncompetitive and artificial… oligarchic indeed.