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Thread: Dollar is doing something it hasnt done in three decades

  1. #41
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    Quote Originally Posted by BigLeRoy View Post
    But in the long run wider trade deficits will make Americans poorer. That's not because foreigners are stealing American jobs, as Mr. Trump often contends. Rather, it's because Americans will increasingly borrow from foreigners to sustain their standard of living. Paying them back will wipe out a sizable chunk of the tax cut's benefit.


    Apparently you think making Americans POORER in the long run is a GOOD thing.

    Well, if that isn't REPUBLICAN thinking for you, right there, in all its NAKED GLORY, I don't know what would be!
    The trade deficit is not a debt that needs to be repaid. If a Frenchman sells a $1mn worth of wine and buys real estate in NY its no different than if we had built a mobile home and shipped it to France.

    The problem is you implicitly assume throughout your ramblings that all of the US' trade deficit becomes US debt and that none, or too little, of that debt is used to finance the production of capital that will increase future output in the US.
    Last edited by publius3; 3rd May 2018 at 01:42 PM.

  2. #42
    Radical Centrist BigLeRoy's Avatar
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    Quote Originally Posted by Libertine View Post
    The tax cuts aren't responsible for the deficit, it is increased spending. Your argument starts with a false premise.

    Congress spent hundreds of billions more than Trump requested, that is the problem.
    (1) Apparently you think that Mr. Trump should have COMPLETE control of the budget, and that Congress should have no say. What you want is NOT a republic. What you apparently want is a dictatorship, or a tyranny of some kind.

    (2) Arithmetic seems to be a SEVERE handicap for you. The budget deficit is the DIFFERENCE between tax revenues and outlays (or spending). So it makes precisely ZERO sense to say that the deficit is caused by spending alone. It is caused by spending being (MUCH) greater than tax revenues.
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  3. #43
    Radical Centrist BigLeRoy's Avatar
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    Quote Originally Posted by publius3 View Post
    The trade deficit is not a debt that needs to be repaid. If a Frenchman sells a $1mn worth of wine and buys real estate in NY its no different than if we had built a mobile home and shipped it to France.

    The problem is you implicitly assume throughout your ramblings that all of the US' trade deficit becomes US debt and that none, or too little, of that debt is used to finance the production of capital that will increase future output in the US.
    The trade deficit DOES mean that we are borrowing from overseas. For your own ideological reasons, you are trying to obfuscate this obvious and elemental fact, but I shan't let you get away with it. Right now, with the annual trade deficit being in the ~$600 billion range, we are borrowing nearly $2 billion a DAY from our foreign creditors. Some of them do indeed consider this an investment in America. But they DO want a return on that investment. Sadly, we are NOT using all that inflow of funds to build up our capital stock. If we WERE, you would be correct that there would be less to worry about. America also had a large trade deficit in the late 19th century. Back then, we were borrowing a prodigious amount of money from Great Britain, the world's financial and geopolitical superpower of the time. Much of that went into building our railroad network, which was (of course) a major infrastructure project that did, indeed, help to increase future output in the U.S.

    Where is the corresponding investment in our capital stock being made today? There is where your argument utterly breaks down. American corporations are NOT investing very much, as has been reported on recently. They are using their tax cut benefits for stock buybacks, rather than capital investments (or giving their employees raises). We are instead using most of the borrowed inflow of funds to finance our CONSUMPTION.

    You will simply not face the unpleasant fact that America is a PROFLIGATE nation, one spending FAR beyond our means, and that our combined trade and budget deficits are both merely the SYMPTOMS of that over-spending by a people with NOTORIOUSLY low rates of saving.

  4. #44
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    Quote Originally Posted by bajisima View Post
    Doesnt it also make fewer people come here and buy things?
    That and this.

    Tourism down since Trump
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  5. #45
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    Quote Originally Posted by BigLeRoy View Post
    The trade deficit DOES mean that we are borrowing from overseas.
    If we buy $1tn from foreigners and sell $500bn to them, do you think they're giving you $500bn? They're not, they're investing and they're clearly not just buying debt instruments.

    Quote Originally Posted by BigLeRoy View Post
    Sadly, we are NOT using all that inflow of funds to build up our capital stock. If we WERE, you would be correct that there would be less to worry about. America also had a large trade deficit in the late 19th century. Back then, we were borrowing a prodigious amount of money from Great Britain, the world's financial and geopolitical superpower of the time. Much of that went into building our railroad network, which was (of course) a major infrastructure project that did, indeed, help to increase future output in the U.S.

    Where is the corresponding investment in our capital stock being made today?
    Its almost like you're in lala land and you have no factual background to engage in any meaningful discussion. Somehow you actually believe this.

    Quote Originally Posted by BigLeRoy View Post
    There is where your argument utterly breaks down. American corporations are NOT investing very much, as has been reported on recently.
    Actually investment is at/near all time highs.

    https://fred.stlouisfed.org/series/GPDI#0

    Quote Originally Posted by BigLeRoy View Post
    They are using their tax cut benefits for stock buybacks, rather than capital investments (or giving their employees raises).
    First off, even if its true, and its not, it doesn't matter, the corporations that buy back the stock get the stock and the shareholder gets the cash and, I suppose, according to you, burns it? Comments like these really show you really don't know what you're talking about at all.

    Quote Originally Posted by BigLeRoy View Post
    We are instead using most of the borrowed inflow of funds to finance our CONSUMPTION.
    Except for what? The real estate, the SC BMW factory, the VW factory in TN, the KIA factory in GA, the Hyundai factory in MS. In fact the US manufacturing sector gets on the order 40% of all FDI in this country.

    Quote Originally Posted by BigLeRoy View Post
    You will simply not face the unpleasant fact that America is a PROFLIGATE nation, one spending FAR beyond our means, and that our combined trade and budget deficits are both merely the SYMPTOMS of that over-spending by a people with NOTORIOUSLY low rates of saving.
    If foreigners buy debt instruments, treasuries included, that means a foreigner is willingly lending, and that does need to be repaid, subject to otherwise legitimate bankruptcies, when repaid the foreigners can use the proceeds to buy American exports or push into other dollar denominated assets. But of course the very thing you think isn't happening, but is, does happen. Suppose that a foreigners uses the $500,000 earned on exports to the US, not to buy treasuries or other bonds, but to open a car wash in New Haven, CT? What is there here to repay? Indeed, this 'mischievous' foreigner opened the CT car wash hoping to make a profit. If true, the the NPV of the investment is greater than the initial investment of $500k. So, let's assume it does well and he can now sell that car wash for $1mn. And now he sells it to, gasp, an American, and he now spends all of that million on American exports. I suspect people like you might call that a 'repayment' of the trade deficit created prior when, in lieu of buying American exports then, he chose to open the car wash. Of course to call that a repayment would be misleading because it implies a debt obligation that simply does not exist. In this example there is NO debt involved. When the foreigner sells for $1mn, this is value that the foreigner created. He created it by offering to buyers here goods and services they valued. Had he operated the car wash poorly, the car wash would not be worth as much and its very likely it could be worth less than the original invesment of $500k. Now let's suppose that he did that and then he sold the car wash later, not for $1mn, but for $250k; perhaps the American buyer makes it into a Subway or maybe thinks they can improve the car wash business. In the case of the poorly run car wash no funds are transferred to compensate for the loss. The $500k 'trade deficit' is not 'repaid' at all. Now let's just say that the foreigner buys it and holds it in perpetuity. Of course he will do so for the future profits. Is that a repayment to you? In what way are these profits repayments? They are the value the foreigner created by running the business well enough. These profits would not exist were it not for his entrepreneurship, risk-taking, and efforts. An American who opens a car wash wants to make profits too and that 'repayment' would be no less of a 'repayment' simply because of the nationality of the investor. Similarly, Americans who buy treasuries or other debt instruments also expect repayment no more or less so than a foreigner. Fact that accounting conventions cause some transactions to be classified in a way to cause a 'deficit' or 'surplus' in certain government book keeping while other identical transactions do not is economically irrelevant.
    Last edited by publius3; 3rd May 2018 at 04:58 PM.

  6. #46
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    Quote Originally Posted by publius3 View Post
    Not so. A trade deficit does not imply that we consume more than we produce although the unfortunate conventional description of trade deficits as resulting from shortfalls of domestic savings over domestic investment fuels this fallacy. What a trade deficit does indicate is that intl investors find the America to be an relatively attractive place to invest. With a net inflow of global capital, our capital stock grows. In turn, production here rises accordingly.
    Publius3, transfer of wealth, (i.e. buying and selling stocks and bonds) do not directly affect GDP calculation.

    The expenditure formula is the most widely accepted and globally used formula for calculating GDP. The assumed formula for U.S. Federal, and I would suppose almost entirely all other creditable GDP references in the USA, is the “expenditure formula”.

    The expenditure formula's references to investments are spendings for using or consuming goods and services on behalf of enterprises.

    Yes, a trade deficit does imply we consume more than we produce.
    ////////////////////////////////////////////////////////////////////

    Quote Originally Posted by publius3 View Post
    An example will expose the fallacy of Ip’s claim. When Toyota built its auto factory in KY[, U.S.,] the trade deficit rose because the Japanese did not spend the dollars previously earned on Japanese exports to America on merchandise, instead they invested in the factory. But this investment was neither evidence of, nor a cause of, the US producing less than it consumes. This Japanese investment caused more cars to be produced HERE actually.
    Publius3, Toyota Motor N.A. Inc., a subsidiary of Japan's Toyota Corp., is no more or less than Ford Motor Corp., a USA enterprise.
    Their products “mix” of direct and indirect production and production supporting labor, materials, and expenditures other expenditures for using or consuming goods and services in various nations, determine their individual products' contributions to various nations' GDPs.

    Respectfully, Supposn
    Last edited by Supposn; 5th May 2018 at 06:39 AM.

  7. #47
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    Quote Originally Posted by Libertine View Post
    Exports are higher than at any time in history and federal borrowing has been reduced since Trump took office.

    So why do you think that resultant trade deficit from the booming economy is a bad thing?
    By what measure?

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    Quote Originally Posted by Libertine View Post
    Exports are higher than at any time in history and federal borrowing has been reduced since Trump took office.

    So why do you think that resultant trade deficit from the booming economy is a bad thing?
    Libertine, an annual USA trade deficit indicate we used or consumed more goods and service products than we produced that year. Annual trade deficits are ALWAYS net detrimental to their nation.

    Respectfully, Supposn
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  9. #49
    Veteran Member HenryPorter's Avatar
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    Quote Originally Posted by Libertine View Post
    Why do you think a trade deficit is a bad thing?
    It's you that think that, that's why you're starting a tariff war.
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  10. #50
    Radical Centrist BigLeRoy's Avatar
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    Quote Originally Posted by Supposn View Post
    Libertine, an annual USA trade deficit indicate we used or consumed more goods and service products than we produced that year. Annual trade deficits are ALWAYS net detrimental to their nation.

    Respectfully, Supposn
    I know exactly when this nutty idea that chronic trade deficits are somehow actually GOOD, and indicate how 'strong' and 'attractive' our economy is, began to circulate in America. It was, of course, during the era of Reaganomics when, in eight short years, America went from being the world's largest creditor nation, to being the world's largest debtor nation. That was an AMAZING transition to undergo in just eight short years, and we began to see some economists coming out of the woodwork to offer an attempted intellectual defense of this sudden lurch into massive budget and trade deficits. It is certainly fascinating to watch, but also very dangerous, because it has captured the fancy of so many otherwise intelligent people.

    Notice that NO ONE would ever apply such thinking to Third World nations. We all become alarmed if we see any Third World nation building up such huge imbalances in its fiscal and current accounts. And in 1998, such large current account deficits helped to trigger the Asian Financial Flu, which struck first in Thailand and spread rapidly to several other countries in the region, that all shared the characteristic of having large trade deficits. And then, in the financial crisis of late 2008/early 2009, some of the hardest hit European countries, the PIIGS countries, such as Portugal, Italy, Greece, and Spain, also had large trade deficits. Only America is supposedly somehow immune to these laws of economics.

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