Trade Deficit

<div class='quotetop'>QUOTE(Dragonfly @ Aug 24 2006, 09:48 PM) [snapback]309163[/snapback]</div>

It just means we bought $205 billion more stuff from them than they bought from us. That's what happens when a country has over a billion people, who make very little money, who are all involved in making plastic doohickies - you can sell your doohickies so cheaply that no other country's companies can afford to make them as cheaply as they can import them, so they import lots and lots of them. It really doesn't mean squat - it's just a great big number that the 24/7 news outlets can throw around to imply that the sky is, once again, falling. It has nothing to do with the budgetary deficit. We owe money to lots of countries, and they and many others owe us money.

 

It doesn't mean we owe them that much money, but it does mean we spent that much more money than we received from China. When you spend $100 at Walmart, you could say your trade deficit with Walmart is $100. If Walmart turns around and buys $250 worth of stuff from you, then you have a $150 trade surplus with Walmart. That's how it works.

The next question is how to finance a big trade deficit. Do you pay from savings, have a surplus elsewhere, or borrow?

Tom

 

<div class='quotetop'>QUOTE(qbee42 @ Aug 25 2006, 11:57 AM) [snapback]309310[/snapback]</div>

America's solution with Japan at the time was a real estate bust that wiped out a pretty fraction of the debt. I'm not implying it was engineered, but it sure solved that particular trade deficit.

A huge chunk of the $$ that the US is funneling to china has been recycled back in the form of US treasury notes. I personally think the US will inflate the US currency to 'solve' that debt, but it will be nowhere near as tidy (read: pain free for americans) as the real estate solution.

 

<div class='quotetop'>QUOTE(Dragonfly @ Aug 24 2006, 07:48 PM) [snapback]309163[/snapback]</div>

No. All it means is that we buy $205BB more from China each year than China buys from the U.S. They've got their hands on $205BB of U.S. cash, we've got our hands on $205BB worth of cheap gym shoes; both parties are satisfied; we don't owe them a dime. What they have that we no longer have is $205BB of U.S. cash - we've traded part of our money supply away for cheap gym shoes. That's not a bad thing if the money supply is robust and plentifully replenished, but such replenishment has to be the result of fair trade, not running a printing press, else inflation will kill your economy.

<div class='quotetop'>QUOTE(Dragonfly @ Aug 24 2006, 07:48 PM) [snapback]309163[/snapback]</div>

No. The U.S. deficit is the amount the U.S. gov't borrows each year when it's spent more than its taxes take in. The national debt (now so large that were it converted to a stack of quarters the stack would tower about 45,000,000 miles high - halfway to the sun - almost enough quarters to beat a Vegas slot machine) is the total accumulated deficits from years of running them. Nothing to do with trade.

However, when China trades cheap gym shoes for $205BB of cold liquid cash, they look for things to do with that cash to make it more valuable to them still, and they use some of it to buy U.S. Treasury bonds (loaning the U.S. gov't money so it can pay Halliburton $250.99 apiece for all those canned meals the soldiers keep eating in Iraq).

I don't know how much of the U.S. national debt is held by China as U.S. Treasury bonds, but I know it's significant; large enough that we shouldn't be reckless with our economy lest China decide it'd be better served redeeming all those notes and investing somewhere else, leaving us abrupt paupers (or defaulters).

That's my view of things - I'll leave it to the real economists to set me straight where I've erred.

Mark Baird
Alameda CA