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> Read about trade deficits as they relate to a country who’s currency is a global reserve currency. US has around 1 trillion USD trade deficit every year, tha
by lossolo 4y ago
> Read about trade deficits as they relate to a country who’s currency is a global reserve currency.
US has around 1 trillion USD trade deficit every year, that money needs to come from somewhere and GDP seems to go up every year.
US also has budget deficit of around 1-1.4 trillion USD per year. So US is also printing 1.4 trillion to finance the budget.
So we are at around -2 trillion USD every year with debt of around 130% GDP.
Seems like the rest of the world is financing that debt? Or how does it work?
- danielschonfeld 4y agoI am no money master but I’ll take a shallow stab at it. Triffin explains the trade deficit perfectly. I’ll quote from Wikipedia: “…that the country whose currency, being the global reserve currency, foreign nations wish to hold, must be willing to supply the world with an extra supply of its currency to fulfil world demand for these foreign exchange reserves, leading to a trade deficit.” We basically have to keep feeding the world with dollars. Or at least collateral that can be trusted to be turned into dollars so that banks around the world can create those dollars. How? Create more government debt. The part about debt to GDP growth is I think exactly that problem of balancing your domestic short term needs vs the long term needs of the currency on a global scale. When the world is starved for dollars and the dollar becomes stronger this isn’t a measure of US economic strength it’s a measure of how much the system is choked. Less dollars to go around less global trade is able to function less goods and services produced all around. In a globalized system if one country isn’t able to produce as much (think China), the effects ripple to all countries like dominos. Causing secondary and tertiary effects further down the chain.