Is a trade deficit good or bad?

[libertad]

From the IMF...

Should countries continue to lower budget deficits? Probably not. Studies have shown that reducing the deficit below 2–2.5 percent of GDP in countries that have achieved macroeconomic stabilization is not beneficial for growth. Our study confirms that countries whose deficits exceeded 2.5 percent of GDP were able to boost their growth rate by strengthening their fiscal position, whereas in countries with deficits lower than 2.5 percent of GDP, growth declined.


http://www.imf.org/external/pubs/ft/fandd/2006/03/pattillo.htm



Good question

 

[andrasnm]

We are getting close to the point where nobody has any confidence in the dollar. Most are going along out of neccesity and lack of true options. If you have "confidence" in the dollar your should have your head/ego examined.

Quote from nazzdack:

It's good as long as people have confidence in the dollar. If that confidence diminishes, then everything will be thrown into a depression. Everybody has to "play nice".

 

[futures_shark]

Quote from andrasnm:

We are getting close to the point where nobody has any confidence in the dollar. Most are going along out of neccesity and lack of true options. If you have "confidence" in the dollar your should have your head/ego examined.

Do you really think other currencies are any better? politicians everywhere overspend without worrying about the future consequences. I don't have the spreadsheet on this computer but OECD has available information on the financial position of it's member countries including the EU as a whole. The majors are all just as overextended as the US if not more.

 

[andrasnm]

No, but Gold and Silver IS as well as farmland and a house.

Quote from futures_shark:

Do you really think other currencies are any better? politicians everywhere overspend without worrying about the future consequences. I don't have the spreadsheet on this computer but OECD has available information on the financial position of it's member countries including the EU as a whole. The majors are all just as overextended as the US if not more.

 

[toc]

'Is a trade deficit good or bad.'

Trade deficit is nothing but a big long long currency game to loot Asians out of their goods and labor. Once huge enough debts are piled up then US will drastically devaluate dollar and pay the debt in much weaker currency. Also most of this deficit is US companies using Asian commodities and labor to produce at cheap and then turn around and sell to US and keep the profits which is fueling the stock markets and keeps the economy growing. Thus US not only gets the cheap products but also keeps the majority of the profits. Very Clever!

On the country vs country argument, China can sell 10 million t-shirts to US at $1 profit and US can turn around and sell 1 Boeing aero plane at $10M profit to offset the deal. US is not losing all out as it might look in media and general thinking.

 

[FireWalker]

Quote from rosy:

you have to understand how the deficit numbers are computed. a US company that outsources everything and then imports the final product adds to the trade deficit.

true, but income to the company isn't necessarily beneficial to the country as a whole.

Let's say the owner of the company is not a saver or investor or traveller and simply spends all his profits in the country. He buys million dollar houses, imports half million dollar cars, and hires lots of service workers.

Sound familiar? That's the net effect of a trade deficit with a few platform companies making profits.

No middle class.

 

[dddooo]

Quote from toc:

Once huge enough debts are piled up then US will drastically devaluate dollar and pay the debt in much weaker currency.

LOL, what a wonderful solution, dollar devaluation means it becomes worthless, all foreign debt will indeed be wiped out .... together with all american savings, 401K plans, bank, money market, savings accounts etc, all imported goods and services will skyrocket in price and become unaffordable to most americans. Dollar devaluation will indeed help us pay off our trade debt and make us as wealthy as an average argentinian in the process.

Quote from toc:

On the country vs country argument, China can sell 10 million t-shirts to US at $1 profit and US can turn around and sell 1 Boeing aero plane at $10M profit to offset the deal. US is not losing all out as it might look in media and general thinking.

Obviously if it was the case we would not have trade deficit, we'd have trade parity. I guess they sell us 100 million t-shirts at $1 profit and we turn around and sell them 1 boeing at $10M profit. We still owe them $90M worth of goods and services (aka trade deficit).

 

[dddooo]

Quote from rosy:

you have to understand how the deficit numbers are computed. a US company that outsources everything and then imports the final product adds to the trade deficit.

If a US company outsources everything - for all intents and purposes that's no longer a US company. Just because the owner of the company still retains american citizenship does not make the company american. Rupert Murdoch owns british newspapers, that does not make those newspapers either American or Australian.

 

[gnome]

Quote from dddooo:

If a US company outsources everything - for all intents and purposes that's no longer a US company. Just because the owner of the company still retains american citizenship does not make the company american. Rupert Murdoch owns british newspapers, that does not make those newspapers either American or Australian.

Can't have it both ways. We can't appreciate importing cheap goods from Asia, then bitch about our trade deficit and say it's "unsustainable". There are only two things which can make an impact on the trade deficit. (1) We stop buying their goods, which probably means BIG recession, and (b) our currency comes down to nearly par with theirs. That would be even worse, as the USD would have to decline to $.05-.$10 of its current value... bankrupting all of the middle class and most of the little-bit-rich folks.

Personally, I believe all the talk about trade deficit and current account deficit is just a deflection to keep us from focusing on the real problem.... criminal deficit spending by Congress and the administration.

 

[gnome]

Quote from gnome:

"... (b) our currency comes down to nearly par with theirs...."

Didn't state that very well....

Meant to say, "our currency comes down enough that there would be equivalent buying power of wages in Asia and the US."