3 ms·

if all you have is money, what do you eat? this isn't a problem, you can buy some food. but if you do, that creates a trade deficit. if you never have a trade d

by curi 19y ago

if all you have is money, what do you eat? this isn't a problem, you can buy some food. but if you do, that creates a trade deficit. if you never have a trade deficit after a surplus, that would mean your country is full of money that it never converts into useful wealth.

kingkongrevenge 19y ago
> if you never have a trade deficit after a surplus, that would mean your country is full of money Don't be ridiculous. The surplus can be invested overseas to buy up foreign competitors and suck away the profits, creating even more trade surplus. The surplus can be invested in creating higher margin export industries domestically, again growing the surplus.
- cellis 19y ago
  Hand wavy economics. I love it. The fact is,people, that economics is not a science. Unlike the (more) axiomatic world of physics and math,economic principals hold true much less in the real world. Yet for some reason, people think that they can formulate theories about how economies work in certain situations. This is tantamount to trying to predict which way the wind will blow.
shawndrost 19y ago
"if you never have a trade deficit after a surplus, that would mean your country is full of money that it never converts into useful wealth." My original question suggested a way to turn that money into wealth -- buy real estate, stocks, etc in other countries. (This is, from what I understand, what actually happens -- more productive countries buy parts of less productive countries, in effect.) Actually, I think there are only two possible answers to my question: first, that purchases of real estate, etc, are included in any analysis of trade. (This would mean my question is just a misunderstanding of what a "trade surplus" is.) Second, that Hume was wrong, and that a country can maintain a trade surplus. Now that I think about it that way, I'm almost certain the answer is the first.
- curi 19y ago
  if you're buying things (real estate, stocks, etc) from other countries -- ie, trading with them -- that has to count towards any reasonable definition of trade surplus/deficit. so, i think we agree, even though kingkongrevenge considers it ridiculous.
  - veritas 19y ago
    This is ridiculous. Trade Deficit = Current Accounts. Current accounts are primarily composed of a nation's trade balance, plus any interest paid/received and things such as foreign aid. Investments = Capital Accounts. Capital accounts are the flip side to the coin which helps balance the books. Capital accounts are a measure of capital flow in and out of the country. The United States with its ridiculous current account deficit needs to attract tremendous amounts of Foreign Direct Investment. I.e, since we're owe money in our current accounts, we have to attract investments in our capital accounts (sell off assets) to balance the books. When a country has surplus of money (China and its trillion dollars in reserve), it means it is running a surplus in the current account. There's only two things it can do with it: hold it (which serves no purpose... as Milton Friedman said: you just exchanged goods for paper) or invest it. China invests it by buying up US T-Bills (hello Foreign Direct Investment), buying assets (oil rights, mineral rights etc), improving infrastructure, and creating government backed private equity firms to invest heavily and well to ensure future growth. This is also similar to what the smart Middle Eastern countries do. This way, down the line a country running a current account surplus will have a diversified and growing rate of return (interest/dividends) and can cover any dip in the trade balance. So that, simplistically, is how the system works. Trade deficits aren't inherently bad (after all, someone has to run a deficit since trade is a zero sum game), but running huge trade deficits and then running huge budget deficits on top of that is really, really bad. I hope that made sense. EDIT: wording.

by curi 19y ago

kingkongrevenge 19y ago

> if you never have a trade deficit after a surplus, that would mean your country is full of money Don't be ridiculous. The surplus can be invested overseas to buy up foreign competitors and suck away the profits, creating even more trade surplus. The surplus can be invested in creating higher margin export industries domestically, again growing the surplus.

cellis 19y ago
Hand wavy economics. I love it. The fact is,people, that economics is not a science. Unlike the (more) axiomatic world of physics and math,economic principals hold true much less in the real world. Yet for some reason, people think that they can formulate theories about how economies work in certain situations. This is tantamount to trying to predict which way the wind will blow.

shawndrost 19y ago

"if you never have a trade deficit after a surplus, that would mean your country is full of money that it never converts into useful wealth." My original question suggested a way to turn that money into wealth -- buy real estate, stocks, etc in other countries. (This is, from what I understand, what actually happens -- more productive countries buy parts of less productive countries, in effect.) Actually, I think there are only two possible answers to my question: first, that purchases of real estate, etc, are included in any analysis of trade. (This would mean my question is just a misunderstanding of what a "trade surplus" is.) Second, that Hume was wrong, and that a country can maintain a trade surplus. Now that I think about it that way, I'm almost certain the answer is the first.

curi 19y ago
if you're buying things (real estate, stocks, etc) from other countries -- ie, trading with them -- that has to count towards any reasonable definition of trade surplus/deficit. so, i think we agree, even though kingkongrevenge considers it ridiculous.
- veritas 19y ago
  This is ridiculous. Trade Deficit = Current Accounts. Current accounts are primarily composed of a nation's trade balance, plus any interest paid/received and things such as foreign aid. Investments = Capital Accounts. Capital accounts are the flip side to the coin which helps balance the books. Capital accounts are a measure of capital flow in and out of the country. The United States with its ridiculous current account deficit needs to attract tremendous amounts of Foreign Direct Investment. I.e, since we're owe money in our current accounts, we have to attract investments in our capital accounts (sell off assets) to balance the books. When a country has surplus of money (China and its trillion dollars in reserve), it means it is running a surplus in the current account. There's only two things it can do with it: hold it (which serves no purpose... as Milton Friedman said: you just exchanged goods for paper) or invest it. China invests it by buying up US T-Bills (hello Foreign Direct Investment), buying assets (oil rights, mineral rights etc), improving infrastructure, and creating government backed private equity firms to invest heavily and well to ensure future growth. This is also similar to what the smart Middle Eastern countries do. This way, down the line a country running a current account surplus will have a diversified and growing rate of return (interest/dividends) and can cover any dip in the trade balance. So that, simplistically, is how the system works. Trade deficits aren't inherently bad (after all, someone has to run a deficit since trade is a zero sum game), but running huge trade deficits and then running huge budget deficits on top of that is really, really bad. I hope that made sense. EDIT: wording.