3 ms·

I think the concept of a budget deficit and a trade deficit is being mixed up.

rayiner 2y ago
If you have a trade defect with everyone, like the US does, you have a current accounts deficit: https://www.investopedia.com/ask/answers/010715/what-difference-between-current-account-deficit-and-trade-deficit.asp https://www.investopedia.com/ask/answers/010715/what-differe.... It means you’re perpetually borrowing to finance consumption. That’s why the Madagascar example misses the point. There’s a handful of large trading partners that account for our overall trade deficit. Everyone else is just being swept in.
- kemotep 2y ago
  But I don’t have debt and I have a trade deficit with every store I buy things from. Like I get that household finances and Country finances don’t map 1 to 1 but like way too much of what I am reading coming from the Trump administration and about international trade and everything seems contradictory. We sell things to ourselves. Is Ohio going bankrupt buying Californian Wines? If States could enact tariffs would it make sense for Ohio to tariff imports from California then?
  - rayiner 2y ago
    The problem with your analogy is that the US doesn’t have a trade deficit with just one country. It has a trade deficit with everyone, which creates a current account deficit. In your analogy, you have trade surplus with your employer.
    - kemotep 2y ago
      But what is the mechanism which causes the Federal Government to go into debt when private companies and citizens import more than they export? If I import more bananas from some Pacific Island country than they buy of American goods, how does that cause the government to borrow money and go into debt?
      - mr_toad 2y ago
        It’s not public debt, it’s private debt. It’s not a coincidence that Americans are becoming more indebted at the same time as the country is running current account deficits.
      - hollerith 2y ago
        The trade deficit is not the main cause of Washington's borrowing. The deficit causes trillions of dollars to accumulate in the hands of Chinese manufacturers, much of which eventually ends up in the hands of the Chinese government (a sovereign wealth fund). The Chinese government keeps that money in dollars (rather than convert it to Chinese currency) because converting it would reduce the strength of the dollar relative to the Chinese currency, making Chinese imports more expensive to Americans, which Beijing does not want. Someone holding $trillions is motivated to invest it to avoid its being eaten away slowly by inflation, and in general, it is not easy to invest that much money especially when you are not located in the US, but US Treasury bonds are one easy way to invest a lot of money. Accumulating $trillions in US Treasury bonds was never one of Beijing's goals: it is the side effect of Beijing's being eager to help its export industries, which is does to give as many Chinese as possible hope for the future, so they don't revolt.
- _DeadFred_ 2y ago
  Fun fact, when you are the world's reserve currency your current account deficits are offset by the fact that every other nations has to hold your currency so that they can conduct international trade. Being the reserve currency makes your currency itself a product that other countries want from you.
  - searealist 2y ago
    Do you think that is sustainable forever? If not, how long?
    - _DeadFred_ 2y ago
      No idea, it's been going on a long time. The dollar weakening would be a sign. The dollar was pretty strong up until Trumps BS.
  - rayiner 2y ago
    That sounds like a scam. Why would other countries put up with that?
    - _DeadFred_ 2y ago
      Wait until you learn how money works. It's all just bits of paper (or now just actual bits/bytes) people pretend has value.

If you have a trade defect with everyone, like the US does, you have a current accounts deficit: https://www.investopedia.com/ask/answers/010715/what-difference-between-current-account-deficit-and-trade-deficit.asp https://www.investopedia.com/ask/answers/010715/what-differe.... It means you’re perpetually borrowing to finance consumption. That’s why the Madagascar example misses the point. There’s a handful of large trading partners that account for our overall trade deficit. Everyone else is just being swept in.

kemotep 2y ago
But I don’t have debt and I have a trade deficit with every store I buy things from. Like I get that household finances and Country finances don’t map 1 to 1 but like way too much of what I am reading coming from the Trump administration and about international trade and everything seems contradictory. We sell things to ourselves. Is Ohio going bankrupt buying Californian Wines? If States could enact tariffs would it make sense for Ohio to tariff imports from California then?
- rayiner 2y ago
  The problem with your analogy is that the US doesn’t have a trade deficit with just one country. It has a trade deficit with everyone, which creates a current account deficit. In your analogy, you have trade surplus with your employer.
  - kemotep 2y ago
    But what is the mechanism which causes the Federal Government to go into debt when private companies and citizens import more than they export? If I import more bananas from some Pacific Island country than they buy of American goods, how does that cause the government to borrow money and go into debt?
    - mr_toad 2y ago
      It’s not public debt, it’s private debt. It’s not a coincidence that Americans are becoming more indebted at the same time as the country is running current account deficits.
    - hollerith 2y ago
      The trade deficit is not the main cause of Washington's borrowing. The deficit causes trillions of dollars to accumulate in the hands of Chinese manufacturers, much of which eventually ends up in the hands of the Chinese government (a sovereign wealth fund). The Chinese government keeps that money in dollars (rather than convert it to Chinese currency) because converting it would reduce the strength of the dollar relative to the Chinese currency, making Chinese imports more expensive to Americans, which Beijing does not want. Someone holding $trillions is motivated to invest it to avoid its being eaten away slowly by inflation, and in general, it is not easy to invest that much money especially when you are not located in the US, but US Treasury bonds are one easy way to invest a lot of money. Accumulating $trillions in US Treasury bonds was never one of Beijing's goals: it is the side effect of Beijing's being eager to help its export industries, which is does to give as many Chinese as possible hope for the future, so they don't revolt.
_DeadFred_ 2y ago
Fun fact, when you are the world's reserve currency your current account deficits are offset by the fact that every other nations has to hold your currency so that they can conduct international trade. Being the reserve currency makes your currency itself a product that other countries want from you.
- searealist 2y ago
  Do you think that is sustainable forever? If not, how long?
  - _DeadFred_ 2y ago
    No idea, it's been going on a long time. The dollar weakening would be a sign. The dollar was pretty strong up until Trumps BS.
- rayiner 2y ago
  That sounds like a scam. Why would other countries put up with that?
  - _DeadFred_ 2y ago
    Wait until you learn how money works. It's all just bits of paper (or now just actual bits/bytes) people pretend has value.