THE TRADE DEFICIT THAT ISN'T
Say you and I each have $2 and you buy a flange from me for $1, meaning I now have $3 and you have $1 less than you had. Technically, one might say you are running a $1 trade deficit. Now because I have $1 in extra money I invest the $1 you gave me in one of your companies. Now what? You didn’t get your money back directly, but I have increased the value of one of your companies by $1 and that $1 will increase even more in value over time and will help finance the growth of your company so you can make more flanges and sell more flanges. Are you still running a trade deficit? Only to the MSM which, as is usual, tries to make our elected Republican Administration look bad.
In addition, because you have a lot of money coming in and you can afford to buy flanges from me for the foreseeable future and I will be investing my surplus money in enterprises all over the world and most will benefit you either directly or indirectly your "debt" isn't really a debt.
We have a ton of extra money because our economy is so successful. We buy from places like China and they turn around and buy our bonds, invest in our businesses, and actually buy some businesses.
There is no such thing as a trade deficit unless we spend more than is reinvested in our economy and our growth stops. Reporters, all of them Left and Liberal to their cores, know this but they ignore it. They report everything they can in such a way as to make the country look bad. They know what the score really is, but continue to color the difference in trade as a net loss of money when it is not. No money sits in vaults in any country. Ever. But the money coming back in cannot be measured each month, so they don't bother trying to figure it out.
So forget about trade deficits. There is no such thing. The awful Arabs? They use our cement, buy our farm surpluses, invest in our bonds and companies, and buy everything. Our money comes back. Period. The “trade deficit” finances our economic growth. It exists only in the minds of liberals.
2/20 add: TCS has a good and easy to understand piece up this AM. File it under great minds think alike.
1 comment:
The time to worry about China is when they stop buying US securities and start investing in China. A nation who's people and government accumulate such vast amounts of foreign exchange surpluses is a nation who's people have no faith in their own government and a government that is terrified of it's own people. When China starts investing in China, the US financial markets will have real competition in acquiring assets and the US will have a real competitor in the military arena.
Trade figures are largely bunk. Apple sells IPod's for $250. Pays Chinese suppliers $50. Of the $50, Israel gets piece ( software), the US gets a piece (the unit's CPU) and others get a piece. But every IPod sold in the US is counting as a win for China. And every IPod sold overseas is $250 for a US company who's net profits are largely repatriated to the US. So who really is the winner in the deal? It isn't China. Apple isn't unique either. There are thousands of US companies large and small who also do the same. If the US really had such horrible trade and financial deficits for the last 30 plus years the US would have suffered an economic collapse and currency collapse long ago. The markets maybe wrong occasionally in the short term, but never so wrong over the long term.
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