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So the only way the US comes out ahead in that situation is through playing games with inflating the currency while lying about it to recoup the costs of servic

So the only way the US comes out ahead in that situation is through playing games with inflating the currency while lying about it to recoup the costs of servicing the debt. In the end, once the US is caught with it's pants down it will definitely not be making the US any richer.

cryptonector 9y ago
All fiat currencies have significant inflation though. Few also benefit from mercantilists incessantly wanting to sell products for that currency. Mind you, mercantilism can have significant detrimental effects on the importer -- no doubt. But it's not all roses for the mercantilist exporter either. Really, a multi-decade trade imbalance is not a good thing for anyone, but it's not that clear who is the worst off.
- handsomechad 9y ago
  Why is a multi-decade trade surplus bad? Doesn't that mean you have an extremely productive / competitive economic engine? Is it bad because of the opportunity cost of not levering up and investing research and future productivity growth?
  - fjsolwmv 9y ago
    You are giving goods to people in exchange for IOUs, but those IOUs can't be redeemed for anything you want, by assumption
    - cryptonector 9y ago
      Correct. The only way you can use those IOUs is if the roles are reversed and the U.S. starts maintaining a trade surplus with the rest of the world (and so the rest of the world a trade deficit with the U.S.). Before the dollar became the reserve currency of the world, the world settled trade in gold. With gold as the reserve currency it was very important to not run out of gold, and this served to keep trade balanced in the long term (and probably also served to keep the lid on growth of international trade, since to buy one kind of thing you'd have to sell some other kind). Incidentally, the concept of comparative advantages is probably a lot more meaningful in the context of balanced trade... But the dollar is the reserve currency. Which means that the world maintains a trade surplus with the U.S. Which means they export things to the U.S. in exchange for IOUs that will get them nothing much (it does help to defend their currencies during crises, but not much more). Meanwhile, Chinese people (in China) are effectively paid less than they should be for the labor they put into manufacturing things to sell to the U.S. This is obvious in that China forces exporters to exchange their dollars for Renminbi, which means those exporters can't buy other things with those dollars than Renmimbi. Also, all those factories in China make things people want in the U.S., not things that people want in China (though maybe there's a lot of overlap). So my take is that mercantilism hurts the mercantilist. It does also hurt the importer in different ways: by reducing employment, for example, and removing productive assets for another, and these things might hurt more when it comes time to rebalance world trade. Who knows, maybe Chinese people in China and Americans will gladly continue this state of affairs. But somehow I doubt it.
dragonwriter 9y ago
> So the only way the US comes out ahead in that situation is through playing games with inflating the currency while lying about it to recoup the costs of servicing the debt. Or, you know, investing the funds in infrastructure and other improvements that yield more benefit than the debt service costs. Or—though there are ethical issues with this—using some portion of the borrowed funds to subvert or other displaced the lending government and cancel the debt. [0] There's probably other mechanisms besides these, as well. [0] Although eventually this was reversed by an outside coalition, Iraq did the brute force version of this to Kuwait in 1990.

cryptonector 9y ago

All fiat currencies have significant inflation though. Few also benefit from mercantilists incessantly wanting to sell products for that currency. Mind you, mercantilism can have significant detrimental effects on the importer -- no doubt. But it's not all roses for the mercantilist exporter either. Really, a multi-decade trade imbalance is not a good thing for anyone, but it's not that clear who is the worst off.

handsomechad 9y ago
Why is a multi-decade trade surplus bad? Doesn't that mean you have an extremely productive / competitive economic engine? Is it bad because of the opportunity cost of not levering up and investing research and future productivity growth?
- fjsolwmv 9y ago
  You are giving goods to people in exchange for IOUs, but those IOUs can't be redeemed for anything you want, by assumption
  - cryptonector 9y ago
    Correct. The only way you can use those IOUs is if the roles are reversed and the U.S. starts maintaining a trade surplus with the rest of the world (and so the rest of the world a trade deficit with the U.S.). Before the dollar became the reserve currency of the world, the world settled trade in gold. With gold as the reserve currency it was very important to not run out of gold, and this served to keep trade balanced in the long term (and probably also served to keep the lid on growth of international trade, since to buy one kind of thing you'd have to sell some other kind). Incidentally, the concept of comparative advantages is probably a lot more meaningful in the context of balanced trade... But the dollar is the reserve currency. Which means that the world maintains a trade surplus with the U.S. Which means they export things to the U.S. in exchange for IOUs that will get them nothing much (it does help to defend their currencies during crises, but not much more). Meanwhile, Chinese people (in China) are effectively paid less than they should be for the labor they put into manufacturing things to sell to the U.S. This is obvious in that China forces exporters to exchange their dollars for Renminbi, which means those exporters can't buy other things with those dollars than Renmimbi. Also, all those factories in China make things people want in the U.S., not things that people want in China (though maybe there's a lot of overlap). So my take is that mercantilism hurts the mercantilist. It does also hurt the importer in different ways: by reducing employment, for example, and removing productive assets for another, and these things might hurt more when it comes time to rebalance world trade. Who knows, maybe Chinese people in China and Americans will gladly continue this state of affairs. But somehow I doubt it.

dragonwriter 9y ago

> So the only way the US comes out ahead in that situation is through playing games with inflating the currency while lying about it to recoup the costs of servicing the debt. Or, you know, investing the funds in infrastructure and other improvements that yield more benefit than the debt service costs. Or—though there are ethical issues with this—using some portion of the borrowed funds to subvert or other displaced the lending government and cancel the debt. [0] There's probably other mechanisms besides these, as well. [0] Although eventually this was reversed by an outside coalition, Iraq did the brute force version of this to Kuwait in 1990.