Lumpenproletariat
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In pop economics the "trade deficit" is said to be a dire threat to the U.S. economy. But many economists disregard it as a threat, and only a minority treat it as a grave problem demanding a solution, without which the economy will blow up some day.
Hopefully this thread will focus on the "trade deficit" per se rather than rambling all over the map about income inequality and minimum wage etc.
Can you explain how the trade deficit is really a threat to the economy? When did a prolonged trade deficit ever hurt a nation, historically?
What they can do with those dollars is spend them on something. Or invest them, etc. But that does not make those dollars a debt.
It can lend them to the U.S., buy T-bills, etc., but that doesn't mean the dollars are debt. The U.S. isn't in any debt to China just because China has those dollars, anymore than it's in debt to you or me because we hold some dollars. If we buy T-bills with them, then there's debt, but not just if we have dollars.
There is no interest being charged on those dollars being held, and there is nothing which has to be paid back by a certain date. There can be no "default" on this so-called debt.
A real "debt" is an obligation to pay back when the payment comes due, after which point the debtor is in default and the lender gets screwed. The lender does not extend the loan unless they're confident of repayment by the date agreed upon. But there is no repayment with the "trade deficit" and no default if the borrower (importing nation) doesn't "pay back" anything.
Proof that the trade deficit does not cause an increase in the national debt is the fact that in the late 1990s the U.S. trade deficit soared, and yet the budget deficit decreased to zero (near-ZERO INCREASE in the national debt), and there was even a budget surplus for 2 or 3 years. How could that happen if higher trade deficit causes higher national debt?
If China buys T-Bills from the U.S., that is new and real debt the U.S. is taking on, which has to be paid back by a due date and on which interest is paid. That is real debt, but it is not necessitated by the trade deficit. The U.S. does not need to borrow that money from China just because China has dollars. It borrows the money because it has to pay for federal programs but doesn't have sufficient revenue from taxes. It doesn't borrow it because of the trade deficit or because China has extra dollars. If China did not buy those T-bills, then the U.S. would turn to some other lender instead.
Even if it's true that we borrow more from China than we would if there were no trade deficit, it still does not mean higher trade deficit causes higher national debt. Because that borrowing would happen anyway, to finance the federal budget, regardless of any trade deficit.
There is no claim China has on the U.S. just because it holds dollars. All it can do is spend or invest those dollars, but it cannot demand payment on this "debt" which is not really a debt.
The national debt would be the same regardless of the China trade deficit, because the U.S. would simply sell those same T-bills to some other buyer/lender and the federal deficit that year would increase by the same amount. It may be a convenience that China buys the T-bills, rather than some other country, but no matter who buys them, the national debt still increases the same either way, regardless of the trade deficit with China.
It's quite possible that the amount of new debt to China is actually LESS than it would be if the U.S. turned to a different lender than China, because it likely can get better terms with China than another lender, since China has all those extra dollars. Whatever -- there is no extra debt just because it's China buying those T-bills rather than some other lender.
They don't. Or usually don't. The exporting nation collects the extra currency or dollars. They might invest it or seek somewhere to spend the dollars, but there is no requirement or obligation on the U.S. to "balance" anything or compensate them for any extra dollars they accumulate if they can't spend or invest all the dollars.
The T-bills are debt. But it's not the trade deficit which causes it.
The cause of those budget deficits paid by the T-bills is the high amount of federal spending and insufficient revenue to cover it, which the politicians balance by borrowing it from whatever source. Other countries also have budget debt, but this is not caused by a trade deficit.
The budget deficits are a choice we make, not something automatic caused by the trade deficit. We could continue the trading and importing at higher levels than exporting, and yet reduce or eliminate the federal deficits if we chose to do so. Nothing about the trade deficit forces us to borrow more to finance the federal budget.
Here is a lengthy one-sided C-SPAN harangue giving all the popular sermons and slogans and patriotic nationalistic outbursts about the evil "trade deficit" which will destroy America if we don't "get tough" on the dirty greedy capitalists shipping "our jobs" to China.
https://www.youtube.com/watch?v=W4tWLkQfSp0
One of the speakers, William Greider, calling for a 25% tariff to prevent another Great Depression, is a typical impulsive China-basher who doesn't realize that the 1930s worst Depression ever was preceded by the most extreme increase in tariffs in the U.S. historically.
Is there any example historically where a nation experienced an economic collapse, or disaster, because of a long trade deficit which dragged on for decades?
Hopefully this thread will focus on the "trade deficit" per se rather than rambling all over the map about income inequality and minimum wage etc.
Can you explain how the trade deficit is really a threat to the economy? When did a prolonged trade deficit ever hurt a nation, historically?
No it doesn't -- not necessarily. It doesn't have to. Of course such exchanges may happen, but there is no requirement that the Fed has to cough up something to take back the dollars. This is not a debt, because there is no obligation for the U.S. to buy back these dollars, or to make any payment of any kind to China which might send these dollars to the U.S. and demand something for them.
What they can do with those dollars is spend them on something. Or invest them, etc. But that does not make those dollars a debt.
It can lend them to the U.S., buy T-bills, etc., but that doesn't mean the dollars are debt. The U.S. isn't in any debt to China just because China has those dollars, anymore than it's in debt to you or me because we hold some dollars. If we buy T-bills with them, then there's debt, but not just if we have dollars.
There is no interest being charged on those dollars being held, and there is nothing which has to be paid back by a certain date. There can be no "default" on this so-called debt.
A real "debt" is an obligation to pay back when the payment comes due, after which point the debtor is in default and the lender gets screwed. The lender does not extend the loan unless they're confident of repayment by the date agreed upon. But there is no repayment with the "trade deficit" and no default if the borrower (importing nation) doesn't "pay back" anything.
Proof that the trade deficit does not cause an increase in the national debt is the fact that in the late 1990s the U.S. trade deficit soared, and yet the budget deficit decreased to zero (near-ZERO INCREASE in the national debt), and there was even a budget surplus for 2 or 3 years. How could that happen if higher trade deficit causes higher national debt?
No it won't. If it did this, then the federal deficit in the late 1990s would not have decreased to zero, i.e., the national debt would have increased.
If China buys T-Bills from the U.S., that is new and real debt the U.S. is taking on, which has to be paid back by a due date and on which interest is paid. That is real debt, but it is not necessitated by the trade deficit. The U.S. does not need to borrow that money from China just because China has dollars. It borrows the money because it has to pay for federal programs but doesn't have sufficient revenue from taxes. It doesn't borrow it because of the trade deficit or because China has extra dollars. If China did not buy those T-bills, then the U.S. would turn to some other lender instead.
Even if it's true that we borrow more from China than we would if there were no trade deficit, it still does not mean higher trade deficit causes higher national debt. Because that borrowing would happen anyway, to finance the federal budget, regardless of any trade deficit.
There is no claim China has on the U.S. just because it holds dollars. All it can do is spend or invest those dollars, but it cannot demand payment on this "debt" which is not really a debt.
But it's not true that the U.S. sells T-bills in order to reduce the trade deficit with China, or that it has any obligation to do so. If it wants to borrow in order to finance the budget, there are many lenders, and it owes the principle and interest to whoever it borrows from, but there is no obligation to borrow it from China just because China has extra dollars.
The national debt would be the same regardless of the China trade deficit, because the U.S. would simply sell those same T-bills to some other buyer/lender and the federal deficit that year would increase by the same amount. It may be a convenience that China buys the T-bills, rather than some other country, but no matter who buys them, the national debt still increases the same either way, regardless of the trade deficit with China.
It's quite possible that the amount of new debt to China is actually LESS than it would be if the U.S. turned to a different lender than China, because it likely can get better terms with China than another lender, since China has all those extra dollars. Whatever -- there is no extra debt just because it's China buying those T-bills rather than some other lender.
They don't. Or usually don't. The exporting nation collects the extra currency or dollars. They might invest it or seek somewhere to spend the dollars, but there is no requirement or obligation on the U.S. to "balance" anything or compensate them for any extra dollars they accumulate if they can't spend or invest all the dollars.
The T-bills are debt. But it's not the trade deficit which causes it.
The cause of those budget deficits paid by the T-bills is the high amount of federal spending and insufficient revenue to cover it, which the politicians balance by borrowing it from whatever source. Other countries also have budget debt, but this is not caused by a trade deficit.
The budget deficits are a choice we make, not something automatic caused by the trade deficit. We could continue the trading and importing at higher levels than exporting, and yet reduce or eliminate the federal deficits if we chose to do so. Nothing about the trade deficit forces us to borrow more to finance the federal budget.
Parade of trade-bashers on C-SPAN
Can you find any evidence here to debunk free trade?
Can you find any evidence here to debunk free trade?
Here is a lengthy one-sided C-SPAN harangue giving all the popular sermons and slogans and patriotic nationalistic outbursts about the evil "trade deficit" which will destroy America if we don't "get tough" on the dirty greedy capitalists shipping "our jobs" to China.
https://www.youtube.com/watch?v=W4tWLkQfSp0
One of the speakers, William Greider, calling for a 25% tariff to prevent another Great Depression, is a typical impulsive China-basher who doesn't realize that the 1930s worst Depression ever was preceded by the most extreme increase in tariffs in the U.S. historically.
Is there any example historically where a nation experienced an economic collapse, or disaster, because of a long trade deficit which dragged on for decades?
