You are an idiot. What a dream world. The trade deficit is the most serious problem facing the country. Every one of your explanations were very, very poor and unclear to anybody with a brain.
@1dgg9h4dr6ppp8 As the video CLEARLY shows, even if we imported and exported EXACTLY the same amount of goods and services, but just stopped ALL foreign investment, the "trade deficit" would be reduced to ZERO. This shows that the whole thing is a sham.
Which is why REAL ECONOMISTS DON'T CALL IT A TRADE DEFICIT. They call it "Net Foreign Investment." Because that's what it IS.
Fact is, most products are NOT Made In America anymore due to corporate greed. Since the Chinese will sweat for hours sewing clothes, making car parts or Barbie dolls for 1/10th of American wages, greedy corporations have come to realize that they can't lose through the safety net called globalization. The only ones who do lose are the millions of Americans who become jobless as their jobs are been shipped overseas.
While some look at trade deficits as the problem. In reality they are symptoms of a much deeper rooted problem. We are chasing producers out of the country with the worlds highest corporate income tax rate.
As we continue to try to tax income, companies ship more jobs overseas, and hold down wages as corporate income taxes cause an exportation of intellectual property and high priced talent.
Long term trade deficit is exporting the countries wealth, selling off assets with other counties buying government debt that pays for increased spending because of fewer domestic producers to fund continue current government spending.
We can increase the value of the dollar and balance trade with sound economic policy. It requires reducing the cost of producing in America. This can be done though reducing regulatory burdens, or removing the cost of taxes from production and tax American's consumption of imports and domestic products the same.
If America enacts the fairtax it would reduce regulatory burdens by roughly $350 billion and balance trade to increase GDP by 4.5% or $638 billion while also increasing the value of the dollar by roughly 5%.
what if rather than investing extra dollars, they just hoard it? that way in a future date they wont have to buy more dollars to buy American goods, they can just use existing ones. That way, when Americans try to trade in their dollars for yuan, the Chinese say "no thanks, I've got plenty of those, thank you!" and the dollar loses significant value.
@interstate317 once china goes from being a centralized planned communist country, to a capitalistic not-dollar-pegged-currency is when some economists think this will happen.
4:17 But, what if you have a trade deficit AND a budget deficit? then you are just borrowing money to buy foreign goods, which is terrible. (also merry christmas)
@interstate317 The problem comes when government starts creating money and increasing the deficits to try and boost consumption, which stifles investment, and the result is we consume way more than we produce. When that happens, the production has to happen somewhere else.
@shanedk so we really haven't been a producing nation since roughly the early 1980's, when the deficit really started taking off. But what about the 1950's? weren't taxes super high back then, how could we have produced?
@interstate317 Actually, we've been VERY productive: the US real manufacturing GDP per capita was at a historical high before the housing market crashed. It's just that the wealth has been taken from us instead of reinvesting.
@interstate317 Running a trade deficit is the primary cause of your currency being devalued (unless you've got fiat money and the government is being stupider than usual).
You know, something like this reminded me of a video about how companies are outsourcing manufacturing jobs. Only reason: Wages in USA are so goddamn high.
@shanedk Yes, but some of the wages are artificially increased because of the minimum wage and some also because the governents are doing regulation like you said.
This video is NOT correct. It doesn't work this way. read some book on monetary system works.
It works like this: If Bob wants to buy german chocolate, he just gives $100 to german chocolate maker. Now german chocolate maker go to European Central Bank, gives them dollars and they give him euros which they print out of nothing. (exchange german for chinese and you know why China has almost 1 trillion US dollars in reserves)
Even if German chocolate maker would insist to take only euros(which is not always true), American has to go to europe then he can exchange money here in the bank or payment is done thru wire transfer or credit card which is also thru the bank and result is the same. Bank takes dollars give euros (clearing is at central bank which create euros and stores dollars). Country with a trade deficits essentially is in debt and exports inflation. Stuff Peter Schiff is talking about.
This is a great video but what if Hans takes his extra dollars and spends them in Haiti, Nigeria, Egypt or some other country that allows direct trade in dollars? Doesn't the possibility exist that the money may circulate and recirculate in these countries for quite some time before they eventually purchase an American good?
To simplify my question, is it true to say the trade deficit is good so long as the dollars make their way back to the United states?
Not a bad thing? The trade deficit for 2008was 799.9 bill. dollars. The population of the U.S. is 304.05 million, 191.25 million people @ working age. Take the 799.9 billion deficit and turn that money into jobs, you put 15.99 million people to work @ $50,000 per year. The unemployment rate in America is 8.6 %, and I feel sure these people would love to have a 50k a year job. You probably make this claim, to justify your own mind for driving a KIA.
"Take the 799.9 billion deficit and turn that money into jobs"
WATCH...THE...VIDEO!!! A $799 billion trade deficit means that there is $799 billion in investment IN AMERICAN ASSETS, which DOES turn the money into jobs.
Temporary deficits can be helpful in certain situations. for example, deficit spending in the form of WWII production is what pulled us out of the great depression. But long-term, huge, exponentially growing deficits will, sooner or later, have disastrous consequences. Ultimately it stands the test of common sense: How can spending huge amounts of money we don't have to consume way more than we produce be anything but bad? The US is $11 trillion below being flat broke. think about it
"Temporary deficits can be helpful in certain situations. for example, deficit spending in the form of WWII production is what pulled us out of the great depression."
That was because they ended up putting the money into the economy that the Federal Reserve should have created ten years earlier. It was the Fed refusing to create money for the gold coming in that caused the massive deflation of the Depression.
No, it was the cataclysmic collapse of Aggregate Demand, and the US' refusal to deficit spend to revive it early in the depression, that caused the massive deflation. I dont know how much gold they were importing, but it certainly wasn't nearly enough to "create" enough money to sufficiently stimulate AD
wow, no need to insult my education, I assure you it is better than yours. I said that to poke fun at your ignorance of what happened during the great depression.
Common stock, which is voting stock, represents the vast majority of all public stock bought and sold in the US. preferred stock is non-voting, but is a very small percentage.
This is my final post, but when the dollar collapses and unemployment and inflation skyrocket in this country, I want you to remember this post.
a decrease in our trade deficit DOES NOT equal a decrease in purchasing power. As our trade deficit decreases (we sell more stuff to the world) demand for the $, hence its value, will go down, but that will be more than offset by a new influx of foreign revenue that, you guessed it, will be converted back into Dollars.
Just because we are spending more than we are making does not mean the value of the discrepancy is being reinvested in the US--it is being spent anyway the foreigners sell to us see fit.
Second, its worth noting that foreign investment = foreign ownership, hence in theory, foreign control.
Bonds are not ownership. Bank accounts are not ownership. It's only if they invest in stocks that they own anything. And even then, if they invest in a stock fund, they won't own anything.
Does your retirement account mean you have ownership and control in lots of companies?
I am totally confused by what you just said. Buying stock by definition is buying units of ownership, and each stock owned means one vote at shareholders meetings of all public companies in the US. Sure, when you only own .04% of a company's stock you will not have control over the company's operations. but when that percent is, say, 20%, suddenly you have a bunch of votes. and if, say 30%, you have a seat on the board. and 51%, you have management control.
First of all, not all stock is voting stock. Second, if you have a fund account that includes stocks, the owner of the stock is whomever's running the fund.
"And even then, if they invest in a stock fund, they won't own anything." Think about it logically. Why the hell spend the money if your not getting ownership? It makes no sense.
With bonds, you have rights to the assets of the bond-issuer in case of default.
"Why the hell spend the money if your not getting ownership? It makes no sense."
Then you're incredibly small-minded and know nothing about handling money.
The general reason for investing is to get a financial return on your investment. Investing in companies in another country lets you take monetary advantage of economic growth in that country.
You might even just want to invest in a currency. A simple bank account in a strong currency will help you if your own currency dips.
I dont know what kind of economics background this guy has, but most of what he says is simply flat wrong.
First, regarding the statement that every $ of the deficit is a dollar of foreign investment..I don know where he is getting that, buts its just not true. A trade deficit is simply defined as a situation where net imports exceed net exports export--you consume more than you produce.
This is a great video but what if Hans takes his extra dollars and spends them in Haiti, Nigeria, Egypt or some other country that allows direct trade in dollars? Doesn't the possibility exist that the money may circulate and recirculate in these countries for quite some time before they eventually purchase an American good?
To simplify my question, is it true to say the trade deficit is good so long as the dollars make their way back to the United states?
Say, for example that with the socialization of the US auto industry, that Japanese sales skyrocket, causing an increase in the demand for Yen from Americans hungry for Toyota cars. By the supply and demand curves, the Yen appreciates in value relative to the Dollar (Demand pull inflation). This causes the dollar to depreciate relative to the Yen. (Im against the Auto bailouts, just to make that clear. Im just using this as an example.)
I apologize if you've already covered this in the other comments, but I didn't learn of this in Intro to Macroeconomics.
Here is what I learned: take two countries, the USA and Japan. The current exchange rate is $1 for 98.745 Yen. For a given exchange rate, the fluctuations are governed by supply and demand of the currencies of used for the transactions.
The problem with the trade deficit is that it causes excess credit creation and loan growth in the exporting countries. Japan, thailand, the asian miracle countries, and now China all our suffering from bubbles that were created by the deficit.
Loan growth in Chinese banks are estimated to be close to 40%. Which is great until Asset bubbles in housing and stocks finally pop. Then you get the deflationary credit contraction and overcapacity which we are seeing now.
And again, this can all be traced back to bad monetary policy. Just as we inflate the dollar to try to make our trade deficit go down, China creates yuan out of thin air to buy the dollars out of the exchange market. This increases their reserve of dollars and tips the exchange rate back in their favor.
The result is bad for the economy of both countries.
FSM = Rainbows + Unicorns + Fairy Dust + Net Leprechauns, which holds true assuming we are not living in the real world. Running trade deficits year after year is a great thing for the domestic economy. We've been importing vast amounts of product from China for over 25 years and look what it has done for our manufacturing base. Countless yearly trade deficits are a great thing because in the long run we are all dead or owned by China!
No, nothing wrong with working hard in America to make foreign GNP's grow at the expense of our own. Nothing at all. Soon we will no longer have to choose between buying a car made in America and one made in Japan, Korea, or eventually China. It's just one big friendly world trade system that is completely fair with perfect information just like in an econ textbook. Heck, we don't have to decide anymore when buying electronics; how about missiles, maybe we can get them cheaper in China, too.
GDP is defined as the value of final goods PRODUCED WITHIN A COUNTRY. If a factory in the US is wholly foreign owned it adds to
US GDP, but not US GNP. The profits (or losses) accrue to the foreign nationals in their GNP. When US GNP falls below US GDP it means foreigners are earning more in our country than we are earning in theirs. I assume you are okay with that, right?
GDP is Consumption + Investment + Government Purchases + Net Exports. GNP is GDP + Net Foreign Income. If GNP falls below GDP, it means that Net Foreign Income is negative--meaning that more foreigners are making money in the US than vice-versa.
But what if it's a really great deal that gives you say 10 times FMV for your share of your domestic house. Wouldn't you be enticed by that short term gain. If you still wouldn't take the foreign offer, I'd like to know your specific non economic reasons for declining.
Hi, I'm from China. Can I buy 51% of your house ShaneDK. The net investment in your house will remain the same. Only now I will own 51% of your house and you will own 49%. As majority owner I will be able to tell you how I will run your house in the future. Are you still interested in your house being foreign owned or would you rather control your own domestic affairs? This is a philosophical question, not one that can be answered by balancing equations from an economics textbook.
Please go back to your regular job as the voice of Kermit the Frog, as you know little of the long term result of foreign ownership of American companies and property. Any increase in GDP, if any, in this country will accrue to the new FOREIGN owners of US companies, like "Hans" who have "invested" in US companies.
"Any increase in GDP, if any, in this country will accrue to the new FOREIGN owners"
Uh, no, it won't. That's why it's called Gross DOMESTIC Product. The only way that GDP is affected by this is by the method I described in the video: the fourth component of GDP is *NET* Foreign Investment, and has as much to do with how much we borrow from them as vice-versa. NFI and Net Exports ARE THE SAME, dollar for dollar.
Fractional Reserve Lending leading to inescapable and increasing interest on unchanging principle... or a trade deficit? Which is worse? Which is less sustainable? Look at Shanes other videos on this subject.
Wow this guy doesn't get it. You need to read Warren Buffets article on the trade deficit from Fortune magazine dated Nov 10th 2003. Do you really think you are correct and Buffet is wrong? What are your qualifications?
Hi my name is Shane, I think foreign ownership of the land an productive capacity of the UNITED STATES OF AMERICA is a good thing! National sovereignty is bad thing.... Other than that pretty good!
this is the "Economy for Dummies" version. A trade deficit is only good ONLY if our country can afford it. Our country cannot afford the $700 billion trade deficit with China. Note: the banks just pumped in $700 Billion to bail out the banks to bail the banks out. Apparently America CANNOT afford to cut the business costs when Asia is buying from Australia instead of China. There is SOOOOOooo much wrong with that picture. $700 bil can pay off mortgages. You're so wrong.
I meant to say that China is not reciprocating the purchase of American goods. They're buying goods from Australia instead of the U.S. You've got the details right, but in application you're totally wrong. Ie.,if a person buys from China and cuts cost 30%, but can only sell 40% of it's goods to himself, then he's in a trade deficit with a weaker dollar to buy gas with. He's not profiting and he lost more money than any money creation can make up for. So he borrows. This is the reality.
what is the equation? A TD drags the value of the dollar way down. Which is why it was dropping before the war. The value of the USD = federal bal plus trade bal plus GDP plus interest received less interest paid and other miscellaneous stuff. Anyways, a comparative advantage only works when the country can afford it. The 95 percent of Americans that own 5 percent of it's wealth can't eat this loss. It's a judgement call. The other countries all maxed a td of only 30 bil together.
@porche75 "China is not reciprocating the purchase of American goods."
Why should it? The factories in China that produce and export all of our consumer goods to us are owned BY AMERICAN COMPANIES. Therefore, the net gain in profits belongs to us, not to them. The only thing they get in return is an increase in employment. If a US company manages to produce something cheaper in a foreign country and sells it for a profit, in what way is it losing in this so called trade war with China?
Trade deficits means foreigners make our goods and we pay THEM for them and employ THEM.
This makes the other country more productive and economically powerful and makes us fat consumers. Fuck german chocolate, when geopolitics is at play and we owe FOREIGNERS money and produce NOTHING here, the game is over.
Your modern voodoo economics, peddled at universities, considers only ECONOMIC factors, never SOCIAL nor GEOPOLITICAL. That's why it is stupid.
"Trade deficits means foreigners make our goods and we pay THEM for them and employ THEM."
And every single dollar of that comes back in investments here at home. It's YOUR version of economics that's stupid because it fails to take that into account.
Ideally. But it's not enough. $700 billion trade deficit with China = $700 bailout of banks. It's not even an opportunity cost. $700 billion dollars could help people pay off a lot of mortgages. Look, it's like this. If a sales person cuts costs by 10% and can't sell their stuff, they're also in a trade deficit and they can't afford their mortgage. Do you see how that works?
Most of the foreigner's dollars come back to us in the form of U.S. Treasuries. I don't consider that an investment. That's a liability for us that we won't be able to pay back. We can't pay it back because of a. government is broke, spent too much and b. the people are broke because we spent too much (consumption).
Because of our trade deficit, foreigners buy up our treasuries, and we're gonna pay em back in deflated dollars. Once they stop financing our deficits, the game will be over.
We have lost most of what can be "invested in." It's hard to find on the net how many tens of thousands of U.S. blue collar industries have either folded or moved away, or how many mllions of $20/hr jobs w/ benefts
we have traded for $6/hr "service jobs" (possibly 40,000,000+). There's a law of diminishing returns; the Ponzi scheme which
I think I am getting off topic, my understanding is that the INTEREST on "U.S. Treasury Bonds" and INFLATION on "U.S. Treasury Notes" are in fact the same thing, because Notes (or dollars) are merely a representation of Bonds.
I asked the following question before, but I don't think I got an adequate reply. If you did, I must have missed it and apologize. If you still disagree, then I must ask why does inflation occur in the debt monetary system?
"my understanding is that the INTEREST on "U.S. Treasury Bonds" and INFLATION on "U.S. Treasury Notes" are in fact the same thing,"
Not quite. What happens is that the government issues bonds, gets money, and spends it. Then it has to pay the interest, and pay the principle on the bond when it's done. If the bond is purchased by a regular person or company, and if it is paid back by tax money, no money is created.
But most bonds are purchased by the Federal Reserve. When this happens, the Fed just goes in to the Treasury's account and adds the money in. This money doesn't come from anywhere, so it's created out of thin air.
There's also a multiplier effect due to the fractional reserve system. Whatever money the Fed creates to cover the bonds might get multiplied tenfold because of this effect.
I was referring to the US bonds sold to China and the problems this brings. The problem isn't so much the bonds, it's the Federal Reserve system that makes bonds effectively be money created out of thin air. Then we get into this massive debt to China, the dollar collapses, and our troubles REALLY begin.
I was hoping you were agreeing that inflation of money was directly related to interest on bonds.
Anyways, it is not the Federal Reserve system that make money out of thin air, it's the fact that our bonds are backed with "Faith", and not Gold or Silver that makes "bonds effectively be money created out of thin air." The treasury department sells bonds quarterly, which it prints based on the "debt ceiling" which is put in place by congress. Congress keeps raising the ceiling is the problem.
However this adding of money to the system (inflation), only decreases the value of the dollar (assuming a GDP does not go up a proportionate amount). This does not remove value from the economy, it only transfers it from the people who are currently holding the dollars (citizens), to the person printing the money (government). This is just another tax mandate by the design of the deficit.
And may I add you reply very quickly, but I wanted to finish my statement before I looked at your reply.
Yah, I thought your video was way off base. Anyways, I am trying to be open minded. So, if interest on bonds, which are create when we wish to create dollars, is not responsible for inflation. Then what is?
I mean, isn't inflation increasing the money supply by printing money? And arn't Bonds directly linked to the printing of money?
That's what I mean. There are U.S. Treasury Bonds. And, the U.S. Treasury bonds are the bonds which America sells to China, in order to print money, in order to pay for the war in Iraq.
The trade deficit is not Company bonds it is U.S. Treasury bonds. You will see them called "T-bonds" or "US T-bonds".
I am saying that since Treasury Bonds create the money, inflation is to us dollars, what interest is to U.S. Treasury bonds. One is required because of the other, although the "miracle" of fractional reserve banking allows us as a country a lot more leeway then would be otherwise. But that is not a discussion I wish to open up at this time.
Sorry, the dialog hierarchy reply service thingy is not working for me in either firefox or konquorer (using kubuntu @ the moment). It just keeps posting my (and possibly all) messages to the top.
Anyways I am not sure about which "that" you talked about "up in the comment" and considering there are several pages of really long winded conversation going on about this video, a key word for location purposes. Perhaps a word or sentence I can search for that takes me to the reference.
Since money must be grown, this places a demand upon the citizens of said country to grow said money. I don't think this is a citizens responsibility, for simply existing.
This system demands inflation. As you said, if an investor invests at 5% and inflation is 3%, then he makes interest of 2%. However, if he invests at 5% and interests is 0%, he makes 5% interest. Therefor it is beneficial for America as a whole to inflate money.
So basically you can think of the U.S. as money farmers. And such, in this example you can think of the economy as the field, dollars as the seeds, and the farmer as the U.S gov.
If the farmer buys to few seeds, then he will not have enough seeds to cover his field, and he will not produce as much as he could have. On the other hand if he buys to many seeds, then he has wasted his money on seed he can't use, hence he will have less net profit. The trick is to find the sweet spot.
Of course you can get the seed anywhere, all I was trying to say is the amount of seed (borrowed money) you get is very import as to how well the system will work. Basically don't barrow more then you need.
Trade deficit can be bad. Basically as you said the trade deficit is money invested into our economy. As such, at some point our economy will be expected to pay back the money plus interest. This is fine, provided that our economy is capable of taking that investment and growing at a rate higher then the interest rate. In this scenario we can create more wealth then we borrowed, and economy benefits as a result. However, if we can not grow money faster then the interest rate, economy is damaged.
I think the most you can say is that the trade deficit can be a SYMPTOM of something bad.
It's not about our "economy" being able to pay back the debt. If a business sells bonds, and then goes under, the bondholders are out of luck. There is no burden on the rest of the economy to pay the debt back. It's handled in the bankruptcy of the business.
Now when you have a LOT of businesses going under like that, it's a different story.
Look at Ben Bernanke. Because of the financial crisis he keeps lowering the interest rate and in the that way increasing the money supply.
The increased supply of money is only a temporarely relief. In the long run increased number of money in circulation without expansion of economy(it not expanding right now) leads to inflation. And to get inflation unbder controll will have to raise interest rates which in turn will lead to mass unemployement.
No, to get inflation under control we have to just stop printing the money. That's it. Germany did it in the 1950s, and they went from hyperinflation to no inflation at all in 5 years.
Again, that has NOTHING to do with the trade deficit. And Bernanke has been called out on his idiocy several times by Ron Paul.
Obviously shanekd are a markedfundamentalist, a sort of taliban of the free markets.
The point shankd is missing is that there comes a point when foreigners wont accept american dollars, and the dollar gets devalued. When americans are too much indepth and cant cant pay their loans, like what happend in the housing market, foreigners will be reluctant to invest unless american assets get cheaper, which means a devalution of currency. So basically, the trade deficit only DELAYS a devalution.,
I'm confused Shane, because of inflation businesses don't have money invested in them... so? Market capital isn't real capital anyway, just because Joe American bought shares for $20 and sold them to Pierre European for $30 doesn't mean a whole lot, the company itself has not gained or lost a thing, unless you're talking about companies that try to raise capital by selling newly created shares, but what kinda foreigner invests in such risky assets anyway?
also, yeah, trading pieces of America for foreign goods doesn't sound like that great of an idea to me, if you can't afford inflation, and you can't afford deficits, then stop importing stuff, how hard is that?
You're not in ANY way "trading pieces of America." This is pure ignorance. What's happening is that the business is agreeing to pay interest in exchange for the investment money. In a very real sense, the business is loaning money from the person. It just isn't called a loan.
i am going to buy usa made products, because where i live i cannot get the job i once wanted BECAUSE IT WAS EXPORTED TO INDIA! how can we continue to trade IF NO ONE IS MAKING MONEY?
so, to what i understand now, is that trade deficit means we are importing more than we are exporting, (made in china label familiar?) that money goes over there and they keep it, because they are so cheap the jobs move over there, we soon make less and less, and less profit, and less jobs stay here.
Um, no, the money does NOT "go over there and they keep it," because they don't use dollars. They exchange their dollars for huan, which means that someone else over there has huan they want to exchange for dollars, which they use to either purchase American goods or invest in the dollar.
It is absolutely real capital. These investments allow businesses to expand just like any other. They create jobs and drive progress. It doesn't matter if the investor is in the US or is foreign; the money works the same way.
And there are LOTS of ways of investing other than stock shares.
im talking about USA here, don't you love this country? if you do then buy made in USA, support the movement of lowering the trade deficit. US companies cannot sell, the same thing is happening to France because of the EURO, their dollar is worth too much, none of the poor countries will buy anything from them because it is too expensive, so how then, do we get our money back to us in circulation if it never can get back because they cant afford it (am i understanding this correctly?)
"im talking about USA here, don't you love this country?"
Ah, wonderful; intellectual blackmail. If I point out how economics actually works, I don't love my country. How nice.
Look, if all foreign investment stopped, there would be NO TRADE DEFICIT, and there would be EXACTLY the same amount of goods being imported and exported. Did you learn NOTHING from watching the video???
So let me get this straight. We buy Chocolate from Germany instead of Hershey's here in Pennsylvania. Hans saves his money from the chocolate we buy and instead buying Bob's Cheddar Cheese, Hans buys Bob's Farm, Dairy and Cheese factory. Now when Bob's employees work for Hans, they send money to Germany. Our work, their profit. Eventually, Hans brings more and more German Chocolate here to put Hersheys out of business and he owns all the means to make Cheese and all the jobs on both sides.
You see the very simple world economy model forgets that the profit belongs to the business owners, not the labor. When all the businesses are foreign owned, the labor becomes foreign owned.
The trade deficit means we export our businesses and thus jobs.
And in the meantime, Bush thinks the can help out the business owners by giving them a tax break. In order to do that, we borrow money from the future. Instead of buying the jobs back from Hans, the Bobs here import BMW's and Mercedes' from Hans. And in turn, they pay for it with interest payments paid for by Bob's employees that now work for Hans.
But what we really needed was to get job creation here. Why not buy Hans' factories and move them here? We need the jobs here working for Bob.
One person buying stock in a business does not make the business "foreign owned." Remember that there are also a lot of Americans buying stock as well. Besides, he might not even do that; he may just have an American bank account holding in dollars, and the bank (not he) does the investing.
That has NOTHING to do with trade deficits. There's no difference between buying cheese and buying a factory as far as the trade deficit is concerned. The factory isn't literally exported, but it shows up the same on the balance sheet.
That isn't what we're talking about here. You're being dishonest. We're talking about foreign demand for dollars, as opposed to foreign demand for goods and services.
Don't call me dishonest for questioning your model. If it does not fairly work to represent the situation, your model is broken.
So Hans buys Bob's Cheese factory. On the books it does look the same. Bob got his dollars (in trade for Euros) and Hans got his factory. Now Hans pays Bob's former employees. They are cheaper in the US than they are in Germany they don't need healthcare and they work 50 hours a week instead of 35. The profit that Hans makes goes to Germany.
"instead buying Bob's Cheddar Cheese, Hans buys Bob's Farm, Dairy and Cheese factory."
More like, he buys stocks or bonds in the business.
"Now when Bob's employees work for Hans, they send money to Germany."
No, they don't. The money that Hans gets as interest on his investment also goes through the exchange system, unless he also wants those dollars to purchase goods or invest in the US.
Hans buys a BMW factory in the US. Hans IS BMW. He does not need to buy stocks or anything here. They just buy the factory. They hire US workers. They invest their Deutsch Marks in the US, but send the profits back to Germany or spend the cash here. And yes of course they do.
We aren't talking about Hans buying a friggin' factory here. Stop moving the goalposts. We're talking about Hans wanting to invest in American dollars.
I was talking about Hans not buying Bob's products, but instead buying Bob's factory. Exactly. This is what is occurring with China. They refuse to buy our products, but buy our infrastructure instead.
Perhaps you are starting to understand why it's their capital surplus and our trade deficit.
Buying products or infrastructure, it makes no difference to the balance sheet. The only difference is that the infrastructure isn't being physically exported; it's still balanced out by the exchange rate.
It's only demand for dollars themselves--more than our demand for their currency--that results in a trade deficit.
They are not - It's a trade deficit on our balance sheet, and a capital surplus on their balance sheet. We lack trade and capital. They have plenty of junk and a surplus of capital.
So let's get it straight for the record. We buy things at Walmart and China has the Cash. China is not buying our goods. We have a trade deficit. They have too much capital - a capital surplus.
When the government inflates the money supply which devalues the dollar, that INCREASES our trade deficit since imports cost more. There's a reason why the trade deficit has been increasing dramatically even as the dollar has been falling. Also, because of our increasing trade deficit, banks around the world are dumping their dollars because they don't want to finance our consumption anymore since it's all going to end.
Then why hasn't our trade deficit shrunk as the dollar loses value? When the dollar loses value, the price of oil goes up, so does every other import. And since our economy is based on consumption, we're still going to import everything we've been importing in the past. That will increase the trade deficit. Mark my words.
Assuming that's true, a mere $2 billion is a drop in the bucket when you consider that our current account deficit is in the hundreds of billions of dollars every year and rising.
I think you're wrong. The trade deficit is going to keep driving down the dollar making imported goods more expensive. Some people then say, "well that's good for exporters because it will make exports cheap." Not in this present-day economy. We use so many imported goods, products, raw materials and commodities to create exported goods that it will also rise the price of exports. This will lead to inflation.
How would the trade deficit drive DOWN the dollar, when the trade deficit is only there because foreigners want to INVEST in dollars? It would only be if they decided they didn't want to invest anymore and dump all their dollar assets that the dollar would be devalued in the exchange market.
The trade deficit drives down the dollar because a falling currency is supposed to fix the trade imbalance. We don't have a trade deficit because people want to invest in us, we have it because we're consuming more of their products than we're exporting. That results in a lot of borrowing and a lot of debt. It is not sustainable at this rate since it's just going to get worse. Especially when those central banks dump their dollars and the Chinese float the yuan.
"We don't have a trade deficit because people want to invest in us, we have it because we're consuming more of their products than we're exporting."
NOT so. Watch the video again. A disparity between imports and exports affects the EXCHANGE RATE. You ONLY get a trade deficit when more people outside the country want to invest more in the US than people in the US want to invest in other countries. THAT is what gets you a trade deficit.
Trade deficit = capital surplus. THEY'RE THE SAME THING.
I get what you're saying with "investments" but it's not really investments. They are capital surplus liabilities. It's IOU's owed to foreigners that we're not going to be able to pay. They know this and that's why one day they're going to stop giving us the money. That's when the economy goes crashing.
Thanks for posting this video and expressing your opinion. Even though many people think it is wrong, I thank you for your effort to explain this.
tutorialconr 1 week ago
In the Real World, Hans dont buy US-Cheese at all. And no one else.
The Point is, that the point comes than the US is forign owned.
efg36 2 weeks ago
You are an idiot. What a dream world. The trade deficit is the most serious problem facing the country. Every one of your explanations were very, very poor and unclear to anybody with a brain.
1dgg9h4dr6ppp8 1 month ago
@1dgg9h4dr6ppp8 As the video CLEARLY shows, even if we imported and exported EXACTLY the same amount of goods and services, but just stopped ALL foreign investment, the "trade deficit" would be reduced to ZERO. This shows that the whole thing is a sham.
Which is why REAL ECONOMISTS DON'T CALL IT A TRADE DEFICIT. They call it "Net Foreign Investment." Because that's what it IS.
shanedk 1 month ago
Fact is, most products are NOT Made In America anymore due to corporate greed. Since the Chinese will sweat for hours sewing clothes, making car parts or Barbie dolls for 1/10th of American wages, greedy corporations have come to realize that they can't lose through the safety net called globalization. The only ones who do lose are the millions of Americans who become jobless as their jobs are been shipped overseas.
FluxCapacitor2008 4 months ago
Republican party is 1000% on the side of big corporations. The very companies who have out-sourced all of the U.S. jobs in manufacturing
FluxCapacitor2008 4 months ago
While some look at trade deficits as the problem. In reality they are symptoms of a much deeper rooted problem. We are chasing producers out of the country with the worlds highest corporate income tax rate.
dtvgmedia 5 months ago
As we continue to try to tax income, companies ship more jobs overseas, and hold down wages as corporate income taxes cause an exportation of intellectual property and high priced talent.
dtvgmedia 5 months ago
Long term trade deficit is exporting the countries wealth, selling off assets with other counties buying government debt that pays for increased spending because of fewer domestic producers to fund continue current government spending.
dtvgmedia 5 months ago
We can increase the value of the dollar and balance trade with sound economic policy. It requires reducing the cost of producing in America. This can be done though reducing regulatory burdens, or removing the cost of taxes from production and tax American's consumption of imports and domestic products the same.
dtvgmedia 5 months ago
If America enacts the fairtax it would reduce regulatory burdens by roughly $350 billion and balance trade to increase GDP by 4.5% or $638 billion while also increasing the value of the dollar by roughly 5%.
Nothing else could possibly do this.
dtvgmedia 5 months ago
fucking votebots.
david52875 6 months ago
what if rather than investing extra dollars, they just hoard it? that way in a future date they wont have to buy more dollars to buy American goods, they can just use existing ones. That way, when Americans try to trade in their dollars for yuan, the Chinese say "no thanks, I've got plenty of those, thank you!" and the dollar loses significant value.
interstate317 1 year ago
@interstate317 once china goes from being a centralized planned communist country, to a capitalistic not-dollar-pegged-currency is when some economists think this will happen.
interstate317 1 year ago
@interstate317 It doesn't work that way. The exchange rate would adjust itself to make it more worthwhile.
shanedk 1 year ago
@shanedk "the exchange rate would adjust itself..."
Unless of course you had a currency peg, which is why I used China in this example
interstate317 1 year ago
@interstate317 Well, yeah, price controls are like that. But then, China would be the big losers in that case. Just ask Argentina.
shanedk 1 year ago
4:17 But, what if you have a trade deficit AND a budget deficit? then you are just borrowing money to buy foreign goods, which is terrible. (also merry christmas)
interstate317 1 year ago
@interstate317 The problem comes when government starts creating money and increasing the deficits to try and boost consumption, which stifles investment, and the result is we consume way more than we produce. When that happens, the production has to happen somewhere else.
shanedk 1 year ago
@shanedk In other words, what is the purpose of producing if the gov't will just give us money for free?
interstate317 1 year ago
@interstate317 Well, it's not about the purpose of producing, it's that you're not able to produce because the investment money isn't there anymore.
shanedk 1 year ago
@shanedk so we really haven't been a producing nation since roughly the early 1980's, when the deficit really started taking off. But what about the 1950's? weren't taxes super high back then, how could we have produced?
interstate317 1 year ago
@interstate317 Actually, we've been VERY productive: the US real manufacturing GDP per capita was at a historical high before the housing market crashed. It's just that the wealth has been taken from us instead of reinvesting.
shanedk 1 year ago 2
@interstate317 Also, what happens if you run a trade deficit WHILE the dollar is being devauled, which is what happened in this last decade.
interstate317 1 year ago
@interstate317 Running a trade deficit is the primary cause of your currency being devalued (unless you've got fiat money and the government is being stupider than usual).
evensgrey 1 year ago
You know, something like this reminded me of a video about how companies are outsourcing manufacturing jobs. Only reason: Wages in USA are so goddamn high.
Denon3333 1 year ago
@Denon3333 If that's the case, then why aren't we getting jobs from Japan, where wages are even higher?
The reason is a higher regulatory burden, not higher wages. Wages are set by supply and demand. Regulatory costs are just waste.
shanedk 1 year ago
@shanedk Yes, but some of the wages are artificially increased because of the minimum wage and some also because the governents are doing regulation like you said.
Denon3333 1 year ago
This video is NOT correct. It doesn't work this way. read some book on monetary system works.
It works like this: If Bob wants to buy german chocolate, he just gives $100 to german chocolate maker. Now german chocolate maker go to European Central Bank, gives them dollars and they give him euros which they print out of nothing. (exchange german for chinese and you know why China has almost 1 trillion US dollars in reserves)
PetrolHead6thGear 2 years ago
No, because the German chocolate maker takes euros, not dollars.
shanedk 2 years ago
Even if German chocolate maker would insist to take only euros(which is not always true), American has to go to europe then he can exchange money here in the bank or payment is done thru wire transfer or credit card which is also thru the bank and result is the same. Bank takes dollars give euros (clearing is at central bank which create euros and stores dollars). Country with a trade deficits essentially is in debt and exports inflation. Stuff Peter Schiff is talking about.
PetrolHead6thGear 2 years ago
I covered the exchange. Watch the video again.
shanedk 2 years ago
@PetrolHead6thGear
"Countries with trade deficits are essentially in debt..."
Well, sort of.
For the U.S.A. for example, that is only true if China lends the United States Government the dollars consumers spent on their goods.
But only then.
Surhotchaperchlorome 1 year ago
I'm sorry if I keep bugging you about this, it's just that this along with banking are two of my weakest knowledge sets with economics.
Surhotchaperchlorome 2 years ago
@1:35 - Is this one of the ways the exchange rate of different currencies is set?
Surhotchaperchlorome 2 years ago
Who would invest in the American economy.
Scoforever 2 years ago
This is a great video but what if Hans takes his extra dollars and spends them in Haiti, Nigeria, Egypt or some other country that allows direct trade in dollars? Doesn't the possibility exist that the money may circulate and recirculate in these countries for quite some time before they eventually purchase an American good?
To simplify my question, is it true to say the trade deficit is good so long as the dollars make their way back to the United states?
KhanSlayer 2 years ago
Not a bad thing? The trade deficit for 2008was 799.9 bill. dollars. The population of the U.S. is 304.05 million, 191.25 million people @ working age. Take the 799.9 billion deficit and turn that money into jobs, you put 15.99 million people to work @ $50,000 per year. The unemployment rate in America is 8.6 %, and I feel sure these people would love to have a 50k a year job. You probably make this claim, to justify your own mind for driving a KIA.
jthall123 2 years ago
"Take the 799.9 billion deficit and turn that money into jobs"
WATCH...THE...VIDEO!!! A $799 billion trade deficit means that there is $799 billion in investment IN AMERICAN ASSETS, which DOES turn the money into jobs.
shanedk 2 years ago
Temporary deficits can be helpful in certain situations. for example, deficit spending in the form of WWII production is what pulled us out of the great depression. But long-term, huge, exponentially growing deficits will, sooner or later, have disastrous consequences. Ultimately it stands the test of common sense: How can spending huge amounts of money we don't have to consume way more than we produce be anything but bad? The US is $11 trillion below being flat broke. think about it
macrofocus1988 2 years ago
"Temporary deficits can be helpful in certain situations. for example, deficit spending in the form of WWII production is what pulled us out of the great depression."
That was because they ended up putting the money into the economy that the Federal Reserve should have created ten years earlier. It was the Fed refusing to create money for the gold coming in that caused the massive deflation of the Depression.
shanedk 2 years ago
No, it was the cataclysmic collapse of Aggregate Demand, and the US' refusal to deficit spend to revive it early in the depression, that caused the massive deflation. I dont know how much gold they were importing, but it certainly wasn't nearly enough to "create" enough money to sufficiently stimulate AD
macrofocus1988 2 years ago
"No, it was the cataclysmic collapse of Aggregate Demand"
The collapse of AD was a RESULT of the money being pulled out by the Fed.
"I dont know how much gold they were importing, but it certainly wasn't nearly enough to "create" enough money to sufficiently stimulate AD"
They imported TONS. They were SUPPOSED to use the gold to create new dollars, AND THEY DIDN'T. They acted as if it DIDN'T EVEN EXIST.
You need to go do some learning.
shanedk 2 years ago
Besides, our government should have been using that money to stimulate economic growth, not buy gold bricks.
macrofocus1988 2 years ago
Oh, for crying out fucking loud, OUR GOVERNMENT WASN'T BUYING GOLD BRICKS!!! GO READ A FUCKING BOOK!!!
shanedk 2 years ago
wow, no need to insult my education, I assure you it is better than yours. I said that to poke fun at your ignorance of what happened during the great depression.
Common stock, which is voting stock, represents the vast majority of all public stock bought and sold in the US. preferred stock is non-voting, but is a very small percentage.
This is my final post, but when the dollar collapses and unemployment and inflation skyrocket in this country, I want you to remember this post.
macrofocus1988 2 years ago
"wow, no need to insult my education, I assure you it is better than yours."
And yet, you're still clueless about what the gold standard is and how it works.
The dollar IS collapsing! And it WOULDN'T if we were on the gold standard.
shanedk 2 years ago
Third,
a decrease in our trade deficit DOES NOT equal a decrease in purchasing power. As our trade deficit decreases (we sell more stuff to the world) demand for the $, hence its value, will go down, but that will be more than offset by a new influx of foreign revenue that, you guessed it, will be converted back into Dollars.
macrofocus1988 2 years ago
Just because we are spending more than we are making does not mean the value of the discrepancy is being reinvested in the US--it is being spent anyway the foreigners sell to us see fit.
Second, its worth noting that foreign investment = foreign ownership, hence in theory, foreign control.
macrofocus1988 2 years ago
Bonds are not ownership. Bank accounts are not ownership. It's only if they invest in stocks that they own anything. And even then, if they invest in a stock fund, they won't own anything.
Does your retirement account mean you have ownership and control in lots of companies?
shanedk 2 years ago
I am totally confused by what you just said. Buying stock by definition is buying units of ownership, and each stock owned means one vote at shareholders meetings of all public companies in the US. Sure, when you only own .04% of a company's stock you will not have control over the company's operations. but when that percent is, say, 20%, suddenly you have a bunch of votes. and if, say 30%, you have a seat on the board. and 51%, you have management control.
macrofocus1988 2 years ago
First of all, not all stock is voting stock. Second, if you have a fund account that includes stocks, the owner of the stock is whomever's running the fund.
shanedk 2 years ago
"And even then, if they invest in a stock fund, they won't own anything." Think about it logically. Why the hell spend the money if your not getting ownership? It makes no sense.
With bonds, you have rights to the assets of the bond-issuer in case of default.
I mean, these are simple facts here.
macrofocus1988 2 years ago
"Why the hell spend the money if your not getting ownership? It makes no sense."
Then you're incredibly small-minded and know nothing about handling money.
The general reason for investing is to get a financial return on your investment. Investing in companies in another country lets you take monetary advantage of economic growth in that country.
You might even just want to invest in a currency. A simple bank account in a strong currency will help you if your own currency dips.
shanedk 2 years ago
I dont know what kind of economics background this guy has, but most of what he says is simply flat wrong.
First, regarding the statement that every $ of the deficit is a dollar of foreign investment..I don know where he is getting that, buts its just not true. A trade deficit is simply defined as a situation where net imports exceed net exports export--you consume more than you produce.
macrofocus1988 2 years ago
You can get it from any macroeconomics textbook.
shanedk 2 years ago
You're are probably right, especially if you add it to the previous debt/obligations.
The World Banker shave decided to do to us what they did to Argentina, and people are to dumb to even know what that means.
its very sad.
DontBeObamaZombies 2 years ago
Indeed, we possible could afford that if we made anything, but because of the globalist agenda of the Trilateral Commission,
our industries have largely been destroyed/shipped away to China/India /Mexico
*And I agree, we need to change from debt based currency to value based currency.
**In fact, i saw a Russia today clip the other day that said local currencies are on the rise.
You seem smart, id like to suggest to you to look up the Trilateral Commission, its agenda, and its founders.
DontBeObamaZombies 2 years ago
No, I think that amount would be destructive no matter how much we made.
shanedk 2 years ago
A trade deficit may not be a bad thing...
but when your country produces nothing but debt, its a house a cards.
DontBeObamaZombies 2 years ago
The problem here is the overall amount of debt. Creating $10 trillion in the span of a year is NOT good, REGARDLESS of the trade deficit.
shanedk 2 years ago
I'm confused.
People seem to act as if the trade deficit is bad because to them it means that we are piling up debt to them.
I don't easily see how this is.
When you buy an import it isn't free. You still have to pay.
Surhotchaperchlorome 2 years ago
This is a great video but what if Hans takes his extra dollars and spends them in Haiti, Nigeria, Egypt or some other country that allows direct trade in dollars? Doesn't the possibility exist that the money may circulate and recirculate in these countries for quite some time before they eventually purchase an American good?
To simplify my question, is it true to say the trade deficit is good so long as the dollars make their way back to the United states?
KhanSlayer 2 years ago
PS: My apologies if you've already explained the relation in the comments.
Surhotchaperchlorome 2 years ago
Say, for example that with the socialization of the US auto industry, that Japanese sales skyrocket, causing an increase in the demand for Yen from Americans hungry for Toyota cars. By the supply and demand curves, the Yen appreciates in value relative to the Dollar (Demand pull inflation). This causes the dollar to depreciate relative to the Yen. (Im against the Auto bailouts, just to make that clear. Im just using this as an example.)
Surhotchaperchlorome 2 years ago
I apologize if you've already covered this in the other comments, but I didn't learn of this in Intro to Macroeconomics.
Here is what I learned: take two countries, the USA and Japan. The current exchange rate is $1 for 98.745 Yen. For a given exchange rate, the fluctuations are governed by supply and demand of the currencies of used for the transactions.
Surhotchaperchlorome 2 years ago
Comment removed
Surhotchaperchlorome 2 years ago
The problem with the trade deficit is that it causes excess credit creation and loan growth in the exporting countries. Japan, thailand, the asian miracle countries, and now China all our suffering from bubbles that were created by the deficit.
Loan growth in Chinese banks are estimated to be close to 40%. Which is great until Asset bubbles in housing and stocks finally pop. Then you get the deflationary credit contraction and overcapacity which we are seeing now.
rangerstrider26 3 years ago
And again, this can all be traced back to bad monetary policy. Just as we inflate the dollar to try to make our trade deficit go down, China creates yuan out of thin air to buy the dollars out of the exchange market. This increases their reserve of dollars and tips the exchange rate back in their favor.
The result is bad for the economy of both countries.
shanedk 3 years ago
FSM = Rainbows + Unicorns + Fairy Dust + Net Leprechauns, which holds true assuming we are not living in the real world. Running trade deficits year after year is a great thing for the domestic economy. We've been importing vast amounts of product from China for over 25 years and look what it has done for our manufacturing base. Countless yearly trade deficits are a great thing because in the long run we are all dead or owned by China!
bucklerfoxton 3 years ago
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bucklerfoxton 3 years ago
No, nothing wrong with working hard in America to make foreign GNP's grow at the expense of our own. Nothing at all. Soon we will no longer have to choose between buying a car made in America and one made in Japan, Korea, or eventually China. It's just one big friendly world trade system that is completely fair with perfect information just like in an econ textbook. Heck, we don't have to decide anymore when buying electronics; how about missiles, maybe we can get them cheaper in China, too.
bucklerfoxton 3 years ago
GDP is defined as the value of final goods PRODUCED WITHIN A COUNTRY. If a factory in the US is wholly foreign owned it adds to
US GDP, but not US GNP. The profits (or losses) accrue to the foreign nationals in their GNP. When US GNP falls below US GDP it means foreigners are earning more in our country than we are earning in theirs. I assume you are okay with that, right?
bucklerfoxton 3 years ago
GDP is Consumption + Investment + Government Purchases + Net Exports. GNP is GDP + Net Foreign Income. If GNP falls below GDP, it means that Net Foreign Income is negative--meaning that more foreigners are making money in the US than vice-versa.
And this is a problem, why?
shanedk 3 years ago
But what if it's a really great deal that gives you say 10 times FMV for your share of your domestic house. Wouldn't you be enticed by that short term gain. If you still wouldn't take the foreign offer, I'd like to know your specific non economic reasons for declining.
bucklerfoxton 3 years ago
Hi, I'm from China. Can I buy 51% of your house ShaneDK. The net investment in your house will remain the same. Only now I will own 51% of your house and you will own 49%. As majority owner I will be able to tell you how I will run your house in the future. Are you still interested in your house being foreign owned or would you rather control your own domestic affairs? This is a philosophical question, not one that can be answered by balancing equations from an economics textbook.
bucklerfoxton 3 years ago
And my answer is, "No."
See? Nobody has to sell if they don't want to.
shanedk 3 years ago
Please go back to your regular job as the voice of Kermit the Frog, as you know little of the long term result of foreign ownership of American companies and property. Any increase in GDP, if any, in this country will accrue to the new FOREIGN owners of US companies, like "Hans" who have "invested" in US companies.
bucklerfoxton 3 years ago
"Any increase in GDP, if any, in this country will accrue to the new FOREIGN owners"
Uh, no, it won't. That's why it's called Gross DOMESTIC Product. The only way that GDP is affected by this is by the method I described in the video: the fourth component of GDP is *NET* Foreign Investment, and has as much to do with how much we borrow from them as vice-versa. NFI and Net Exports ARE THE SAME, dollar for dollar.
shanedk 3 years ago
So the value of the currency i based upon speculative demand, and NOT upon the 'real wealth' of the of the nation?
How does this relate to the cessation of America's practice of backing its currency with meaningful wealth (such as gold)?
What school of economics do you adhere to?
XxsolusxX 3 years ago
Don't confuse the exchange rate with the value of a currency. It's a ratio between the value of two currencies; there's a difference.
I favor the Austrian school.
shanedk 3 years ago
comical
rick6393 3 years ago
Fractional Reserve Lending leading to inescapable and increasing interest on unchanging principle... or a trade deficit? Which is worse? Which is less sustainable? Look at Shanes other videos on this subject.
RyuDarragh 3 years ago
Wow this guy doesn't get it. You need to read Warren Buffets article on the trade deficit from Fortune magazine dated Nov 10th 2003. Do you really think you are correct and Buffet is wrong? What are your qualifications?
ahausheer 3 years ago
Argument from authority. Worthless.
shanedk 3 years ago
Hi my name is Shane, I think foreign ownership of the land an productive capacity of the UNITED STATES OF AMERICA is a good thing! National sovereignty is bad thing.... Other than that pretty good!
rjtoten 3 years ago
shanedk. You just dont get it. Your dealing with somthing you just dont understand.
jerodwilson 3 years ago
Um, I explained it in detail. If I don't understand it, then why don't you explain where I got it wrong?
shanedk 3 years ago
this is the "Economy for Dummies" version. A trade deficit is only good ONLY if our country can afford it. Our country cannot afford the $700 billion trade deficit with China. Note: the banks just pumped in $700 Billion to bail out the banks to bail the banks out. Apparently America CANNOT afford to cut the business costs when Asia is buying from Australia instead of China. There is SOOOOOooo much wrong with that picture. $700 bil can pay off mortgages. You're so wrong.
porche75 3 years ago
I meant to say that China is not reciprocating the purchase of American goods. They're buying goods from Australia instead of the U.S. You've got the details right, but in application you're totally wrong. Ie.,if a person buys from China and cuts cost 30%, but can only sell 40% of it's goods to himself, then he's in a trade deficit with a weaker dollar to buy gas with. He's not profiting and he lost more money than any money creation can make up for. So he borrows. This is the reality.
porche75 3 years ago
The trade deficit isn't what makes the dollar weaker; the BUDGET deficit is. This is an Incorrect Cause Fallacy.
shanedk 3 years ago
what is the equation? A TD drags the value of the dollar way down. Which is why it was dropping before the war. The value of the USD = federal bal plus trade bal plus GDP plus interest received less interest paid and other miscellaneous stuff. Anyways, a comparative advantage only works when the country can afford it. The 95 percent of Americans that own 5 percent of it's wealth can't eat this loss. It's a judgement call. The other countries all maxed a td of only 30 bil together.
therealcaptobvious 3 years ago
@porche75 "China is not reciprocating the purchase of American goods."
Why should it? The factories in China that produce and export all of our consumer goods to us are owned BY AMERICAN COMPANIES. Therefore, the net gain in profits belongs to us, not to them. The only thing they get in return is an increase in employment. If a US company manages to produce something cheaper in a foreign country and sells it for a profit, in what way is it losing in this so called trade war with China?
regelemihai 5 months ago
Trade deficits means foreigners make our goods and we pay THEM for them and employ THEM.
This makes the other country more productive and economically powerful and makes us fat consumers. Fuck german chocolate, when geopolitics is at play and we owe FOREIGNERS money and produce NOTHING here, the game is over.
Your modern voodoo economics, peddled at universities, considers only ECONOMIC factors, never SOCIAL nor GEOPOLITICAL. That's why it is stupid.
maxime32 3 years ago
"Trade deficits means foreigners make our goods and we pay THEM for them and employ THEM."
And every single dollar of that comes back in investments here at home. It's YOUR version of economics that's stupid because it fails to take that into account.
shanedk 3 years ago
Ideally. But it's not enough. $700 billion trade deficit with China = $700 bailout of banks. It's not even an opportunity cost. $700 billion dollars could help people pay off a lot of mortgages. Look, it's like this. If a sales person cuts costs by 10% and can't sell their stuff, they're also in a trade deficit and they can't afford their mortgage. Do you see how that works?
porche75 3 years ago
Most of the foreigner's dollars come back to us in the form of U.S. Treasuries. I don't consider that an investment. That's a liability for us that we won't be able to pay back. We can't pay it back because of a. government is broke, spent too much and b. the people are broke because we spent too much (consumption).
Because of our trade deficit, foreigners buy up our treasuries, and we're gonna pay em back in deflated dollars. Once they stop financing our deficits, the game will be over.
Annie55marie 3 years ago
That's because of our budget deficit, not our trade deficit.
shanedk 3 years ago
We have lost most of what can be "invested in." It's hard to find on the net how many tens of thousands of U.S. blue collar industries have either folded or moved away, or how many mllions of $20/hr jobs w/ benefts
we have traded for $6/hr "service jobs" (possibly 40,000,000+). There's a law of diminishing returns; the Ponzi scheme which
has been our economy has to bottom out.
You can't keep replacing a Beth. Steel with a
Sands casino and another useless mall.
lumpagogo 3 years ago
I think I am getting off topic, my understanding is that the INTEREST on "U.S. Treasury Bonds" and INFLATION on "U.S. Treasury Notes" are in fact the same thing, because Notes (or dollars) are merely a representation of Bonds.
I asked the following question before, but I don't think I got an adequate reply. If you did, I must have missed it and apologize. If you still disagree, then I must ask why does inflation occur in the debt monetary system?
amcnea 3 years ago
"my understanding is that the INTEREST on "U.S. Treasury Bonds" and INFLATION on "U.S. Treasury Notes" are in fact the same thing,"
Not quite. What happens is that the government issues bonds, gets money, and spends it. Then it has to pay the interest, and pay the principle on the bond when it's done. If the bond is purchased by a regular person or company, and if it is paid back by tax money, no money is created.
(cont'd)
shanedk 3 years ago
But most bonds are purchased by the Federal Reserve. When this happens, the Fed just goes in to the Treasury's account and adds the money in. This money doesn't come from anywhere, so it's created out of thin air.
There's also a multiplier effect due to the fractional reserve system. Whatever money the Fed creates to cover the bonds might get multiplied tenfold because of this effect.
shanedk 3 years ago
But you said "Yes", so that make me think we agreed about something. I am just curious to know what it is?
amcnea 3 years ago
I was referring to the US bonds sold to China and the problems this brings. The problem isn't so much the bonds, it's the Federal Reserve system that makes bonds effectively be money created out of thin air. Then we get into this massive debt to China, the dollar collapses, and our troubles REALLY begin.
shanedk 3 years ago
I was hoping you were agreeing that inflation of money was directly related to interest on bonds.
Anyways, it is not the Federal Reserve system that make money out of thin air, it's the fact that our bonds are backed with "Faith", and not Gold or Silver that makes "bonds effectively be money created out of thin air." The treasury department sells bonds quarterly, which it prints based on the "debt ceiling" which is put in place by congress. Congress keeps raising the ceiling is the problem.
amcnea 3 years ago
Actually, bonds are backed by the government's ability to tax the bejeezus out of us.
shanedk 3 years ago
However this adding of money to the system (inflation), only decreases the value of the dollar (assuming a GDP does not go up a proportionate amount). This does not remove value from the economy, it only transfers it from the people who are currently holding the dollars (citizens), to the person printing the money (government). This is just another tax mandate by the design of the deficit.
And may I add you reply very quickly, but I wanted to finish my statement before I looked at your reply.
amcnea 3 years ago
Well, that was the whole point of the video. Inflating the currency to get rid of the trade deficit is bogus.
shanedk 3 years ago
Yah, I thought your video was way off base. Anyways, I am trying to be open minded. So, if interest on bonds, which are create when we wish to create dollars, is not responsible for inflation. Then what is?
I mean, isn't inflation increasing the money supply by printing money? And arn't Bonds directly linked to the printing of money?
amcnea 3 years ago
It's only government bonds that create money. Company bonds don't.
shanedk 3 years ago
That's what I mean. There are U.S. Treasury Bonds. And, the U.S. Treasury bonds are the bonds which America sells to China, in order to print money, in order to pay for the war in Iraq.
The trade deficit is not Company bonds it is U.S. Treasury bonds. You will see them called "T-bonds" or "US T-bonds".
amcnea 3 years ago
I am saying that since Treasury Bonds create the money, inflation is to us dollars, what interest is to U.S. Treasury bonds. One is required because of the other, although the "miracle" of fractional reserve banking allows us as a country a lot more leeway then would be otherwise. But that is not a discussion I wish to open up at this time.
amcnea 3 years ago
Yes, I talked about that further up in the comments.
shanedk 3 years ago
Sorry, the dialog hierarchy reply service thingy is not working for me in either firefox or konquorer (using kubuntu @ the moment). It just keeps posting my (and possibly all) messages to the top.
Anyways I am not sure about which "that" you talked about "up in the comment" and considering there are several pages of really long winded conversation going on about this video, a key word for location purposes. Perhaps a word or sentence I can search for that takes me to the reference.
amcnea 3 years ago
Negative Aspects of the Trade Deficit:
Since money must be grown, this places a demand upon the citizens of said country to grow said money. I don't think this is a citizens responsibility, for simply existing.
This system demands inflation. As you said, if an investor invests at 5% and inflation is 3%, then he makes interest of 2%. However, if he invests at 5% and interests is 0%, he makes 5% interest. Therefor it is beneficial for America as a whole to inflate money.
amcnea 3 years ago
So basically you can think of the U.S. as money farmers. And such, in this example you can think of the economy as the field, dollars as the seeds, and the farmer as the U.S gov.
If the farmer buys to few seeds, then he will not have enough seeds to cover his field, and he will not produce as much as he could have. On the other hand if he buys to many seeds, then he has wasted his money on seed he can't use, hence he will have less net profit. The trick is to find the sweet spot.
amcnea 3 years ago
And, of course, he can get the seeds from here or overseas, and people overseas can get their seeds from here if they want.
shanedk 3 years ago
Of course you can get the seed anywhere, all I was trying to say is the amount of seed (borrowed money) you get is very import as to how well the system will work. Basically don't barrow more then you need.
amcnea 3 years ago
But that should be the case regardless of whether you're borrowing domestically or overseas.
shanedk 3 years ago
agreed (about borrowing money), is the dialog tree structure working for you?
amcnea 3 years ago
Trade deficit can be bad. Basically as you said the trade deficit is money invested into our economy. As such, at some point our economy will be expected to pay back the money plus interest. This is fine, provided that our economy is capable of taking that investment and growing at a rate higher then the interest rate. In this scenario we can create more wealth then we borrowed, and economy benefits as a result. However, if we can not grow money faster then the interest rate, economy is damaged.
amcnea 3 years ago
I think the most you can say is that the trade deficit can be a SYMPTOM of something bad.
It's not about our "economy" being able to pay back the debt. If a business sells bonds, and then goes under, the bondholders are out of luck. There is no burden on the rest of the economy to pay the debt back. It's handled in the bankruptcy of the business.
Now when you have a LOT of businesses going under like that, it's a different story.
shanedk 3 years ago
Look at Ben Bernanke. Because of the financial crisis he keeps lowering the interest rate and in the that way increasing the money supply.
The increased supply of money is only a temporarely relief. In the long run increased number of money in circulation without expansion of economy(it not expanding right now) leads to inflation. And to get inflation unbder controll will have to raise interest rates which in turn will lead to mass unemployement.
LamperOne 3 years ago
No, to get inflation under control we have to just stop printing the money. That's it. Germany did it in the 1950s, and they went from hyperinflation to no inflation at all in 5 years.
Again, that has NOTHING to do with the trade deficit. And Bernanke has been called out on his idiocy several times by Ron Paul.
shanedk 3 years ago
Obviously shanekd are a markedfundamentalist, a sort of taliban of the free markets.
The point shankd is missing is that there comes a point when foreigners wont accept american dollars, and the dollar gets devalued. When americans are too much indepth and cant cant pay their loans, like what happend in the housing market, foreigners will be reluctant to invest unless american assets get cheaper, which means a devalution of currency. So basically, the trade deficit only DELAYS a devalution.,
LamperOne 3 years ago
I'm confused Shane, because of inflation businesses don't have money invested in them... so? Market capital isn't real capital anyway, just because Joe American bought shares for $20 and sold them to Pierre European for $30 doesn't mean a whole lot, the company itself has not gained or lost a thing, unless you're talking about companies that try to raise capital by selling newly created shares, but what kinda foreigner invests in such risky assets anyway?
luke666808g 3 years ago
also, yeah, trading pieces of America for foreign goods doesn't sound like that great of an idea to me, if you can't afford inflation, and you can't afford deficits, then stop importing stuff, how hard is that?
luke666808g 3 years ago 2
You're not in ANY way "trading pieces of America." This is pure ignorance. What's happening is that the business is agreeing to pay interest in exchange for the investment money. In a very real sense, the business is loaning money from the person. It just isn't called a loan.
shanedk 3 years ago
i am going to buy usa made products, because where i live i cannot get the job i once wanted BECAUSE IT WAS EXPORTED TO INDIA! how can we continue to trade IF NO ONE IS MAKING MONEY?
so, to what i understand now, is that trade deficit means we are importing more than we are exporting, (made in china label familiar?) that money goes over there and they keep it, because they are so cheap the jobs move over there, we soon make less and less, and less profit, and less jobs stay here.
Tr1llobite 3 years ago
Um, no, the money does NOT "go over there and they keep it," because they don't use dollars. They exchange their dollars for huan, which means that someone else over there has huan they want to exchange for dollars, which they use to either purchase American goods or invest in the dollar.
shanedk 3 years ago
It is absolutely real capital. These investments allow businesses to expand just like any other. They create jobs and drive progress. It doesn't matter if the investor is in the US or is foreign; the money works the same way.
And there are LOTS of ways of investing other than stock shares.
shanedk 3 years ago
im talking about USA here, don't you love this country? if you do then buy made in USA, support the movement of lowering the trade deficit. US companies cannot sell, the same thing is happening to France because of the EURO, their dollar is worth too much, none of the poor countries will buy anything from them because it is too expensive, so how then, do we get our money back to us in circulation if it never can get back because they cant afford it (am i understanding this correctly?)
Tr1llobite 3 years ago
"im talking about USA here, don't you love this country?"
Ah, wonderful; intellectual blackmail. If I point out how economics actually works, I don't love my country. How nice.
Look, if all foreign investment stopped, there would be NO TRADE DEFICIT, and there would be EXACTLY the same amount of goods being imported and exported. Did you learn NOTHING from watching the video???
shanedk 3 years ago
sss
DogFoot23 4 years ago
So let me get this straight. We buy Chocolate from Germany instead of Hershey's here in Pennsylvania. Hans saves his money from the chocolate we buy and instead buying Bob's Cheddar Cheese, Hans buys Bob's Farm, Dairy and Cheese factory. Now when Bob's employees work for Hans, they send money to Germany. Our work, their profit. Eventually, Hans brings more and more German Chocolate here to put Hersheys out of business and he owns all the means to make Cheese and all the jobs on both sides.
HiTekVagabond 4 years ago
You see the very simple world economy model forgets that the profit belongs to the business owners, not the labor. When all the businesses are foreign owned, the labor becomes foreign owned.
The trade deficit means we export our businesses and thus jobs.
And you, Shane, seem to think this is great.
HiTekVagabond 4 years ago
And in the meantime, Bush thinks the can help out the business owners by giving them a tax break. In order to do that, we borrow money from the future. Instead of buying the jobs back from Hans, the Bobs here import BMW's and Mercedes' from Hans. And in turn, they pay for it with interest payments paid for by Bob's employees that now work for Hans.
But what we really needed was to get job creation here. Why not buy Hans' factories and move them here? We need the jobs here working for Bob.
HiTekVagabond 4 years ago
One person buying stock in a business does not make the business "foreign owned." Remember that there are also a lot of Americans buying stock as well. Besides, he might not even do that; he may just have an American bank account holding in dollars, and the bank (not he) does the investing.
Trade deficits do NOT export businesses.
shanedk 4 years ago
Of course they do. They come back to buy US Businesses in whole. Look how many businesses are foreign owned here. It's all our trade deficit.
I take it you have not looked at how many US banks are actually owned by the Chinese now.
HiTekVagabond 4 years ago
That has NOTHING to do with trade deficits. There's no difference between buying cheese and buying a factory as far as the trade deficit is concerned. The factory isn't literally exported, but it shows up the same on the balance sheet.
That isn't what we're talking about here. You're being dishonest. We're talking about foreign demand for dollars, as opposed to foreign demand for goods and services.
shanedk 4 years ago
Don't call me dishonest for questioning your model. If it does not fairly work to represent the situation, your model is broken.
So Hans buys Bob's Cheese factory. On the books it does look the same. Bob got his dollars (in trade for Euros) and Hans got his factory. Now Hans pays Bob's former employees. They are cheaper in the US than they are in Germany they don't need healthcare and they work 50 hours a week instead of 35. The profit that Hans makes goes to Germany.
milofonbil 4 years ago
"The profit that Hans makes goes to Germany. "
HOW does that profit go to Germany? That's the part you're missing out on. Don't call MY model invalid when yours misses a BIG part of it!!!
shanedk 4 years ago
"instead buying Bob's Cheddar Cheese, Hans buys Bob's Farm, Dairy and Cheese factory."
More like, he buys stocks or bonds in the business.
"Now when Bob's employees work for Hans, they send money to Germany."
No, they don't. The money that Hans gets as interest on his investment also goes through the exchange system, unless he also wants those dollars to purchase goods or invest in the US.
shanedk 4 years ago
Hans buys a BMW factory in the US. Hans IS BMW. He does not need to buy stocks or anything here. They just buy the factory. They hire US workers. They invest their Deutsch Marks in the US, but send the profits back to Germany or spend the cash here. And yes of course they do.
HiTekVagabond 4 years ago
We aren't talking about Hans buying a friggin' factory here. Stop moving the goalposts. We're talking about Hans wanting to invest in American dollars.
shanedk 4 years ago
I was talking about Hans not buying Bob's products, but instead buying Bob's factory. Exactly. This is what is occurring with China. They refuse to buy our products, but buy our infrastructure instead.
Perhaps you are starting to understand why it's their capital surplus and our trade deficit.
milofonbil 4 years ago
Buying products or infrastructure, it makes no difference to the balance sheet. The only difference is that the infrastructure isn't being physically exported; it's still balanced out by the exchange rate.
It's only demand for dollars themselves--more than our demand for their currency--that results in a trade deficit.
shanedk 4 years ago
What else could they be caused by? All other factors are covered by the exchange rate. A trade deficit is a capital surplus. THEY'RE THE SAME THING.
shanedk 4 years ago
They are not - It's a trade deficit on our balance sheet, and a capital surplus on their balance sheet. We lack trade and capital. They have plenty of junk and a surplus of capital.
HiTekVagabond 4 years ago
"They are not - It's a trade deficit on our balance sheet, and a capital surplus on their balance sheet."
Complete balderdash. It's a capital DEFICIT (and a trade surplus) on THEIR balance sheet.
You've been listening to too many political economists.
shanedk 4 years ago
So let's get it straight for the record. We buy things at Walmart and China has the Cash. China is not buying our goods. We have a trade deficit. They have too much capital - a capital surplus.
HiTekVagabond 4 years ago
Did you even WATCH the frickin' video??? That's NOT what a trade deficit is!!!
It's about the EXCHANGE!!! Which you COMPLETELY LEFT OUT of your bogus explanation!
shanedk 4 years ago
Yes ... of course it's about exchange. Once the dollar becomes worthless, he buys the factories instead of the product. My point exactly.
milofonbil 4 years ago
Yes, as the dollar becomes worthless, things here become cheaper for foreigners to buy. That happens WITH OR WITHOUT a trade deficit!
shanedk 4 years ago
When the government inflates the money supply which devalues the dollar, that INCREASES our trade deficit since imports cost more. There's a reason why the trade deficit has been increasing dramatically even as the dollar has been falling. Also, because of our increasing trade deficit, banks around the world are dumping their dollars because they don't want to finance our consumption anymore since it's all going to end.
Annie55marie 4 years ago
"When the government inflates the money supply which devalues the dollar, that INCREASES our trade deficit since imports cost more."
No, it doesn't, because the exchange rate changes to match it.
shanedk 4 years ago
Then why hasn't our trade deficit shrunk as the dollar loses value? When the dollar loses value, the price of oil goes up, so does every other import. And since our economy is based on consumption, we're still going to import everything we've been importing in the past. That will increase the trade deficit. Mark my words.
Annie55marie 4 years ago
Actually, the trade deficit's about $2 billion lower now than it was a couple of years ago.
shanedk 4 years ago
Assuming that's true, a mere $2 billion is a drop in the bucket when you consider that our current account deficit is in the hundreds of billions of dollars every year and rising.
CPofVirginia 4 years ago
The account deficit and the trade deficit are two entirely different things.
shanedk 4 years ago
I think you're wrong. The trade deficit is going to keep driving down the dollar making imported goods more expensive. Some people then say, "well that's good for exporters because it will make exports cheap." Not in this present-day economy. We use so many imported goods, products, raw materials and commodities to create exported goods that it will also rise the price of exports. This will lead to inflation.
Annie55marie 4 years ago
How would the trade deficit drive DOWN the dollar, when the trade deficit is only there because foreigners want to INVEST in dollars? It would only be if they decided they didn't want to invest anymore and dump all their dollar assets that the dollar would be devalued in the exchange market.
shanedk 4 years ago
The trade deficit drives down the dollar because a falling currency is supposed to fix the trade imbalance. We don't have a trade deficit because people want to invest in us, we have it because we're consuming more of their products than we're exporting. That results in a lot of borrowing and a lot of debt. It is not sustainable at this rate since it's just going to get worse. Especially when those central banks dump their dollars and the Chinese float the yuan.
Annie55marie 4 years ago
"We don't have a trade deficit because people want to invest in us, we have it because we're consuming more of their products than we're exporting."
NOT so. Watch the video again. A disparity between imports and exports affects the EXCHANGE RATE. You ONLY get a trade deficit when more people outside the country want to invest more in the US than people in the US want to invest in other countries. THAT is what gets you a trade deficit.
Trade deficit = capital surplus. THEY'RE THE SAME THING.
shanedk 4 years ago
I get what you're saying with "investments" but it's not really investments. They are capital surplus liabilities. It's IOU's owed to foreigners that we're not going to be able to pay. They know this and that's why one day they're going to stop giving us the money. That's when the economy goes crashing.
Annie55marie 4 years ago
They're no more liabilities than any other investment is. And if they already know this, they'll already have stopped giving us the money.
shanedk 4 years ago