The Trade Defecit Myth

This post by gilliganscorner about "The Trade Deficit Fnord" was interesting.

Trade deficits and surpluses are an important issue that mainstream pro-State troll economists always get wrong.

In the context of fiat paper money, a trade surplus is bad for the country with a surplus. A trade deficit is good for the country with the deficit.

Suppose you have a trade surplus. You were a net exporter of goods and services. In return, you received a piece of paper that will lose value over time due to inflation. Essentially, some people in the country with a surplus worked for free.

Suppose you have a trade deficit. Here, there are two separate cases. Suppose you are a third world country. The governments' debts are denominated in dollars or euros, but its income is in its local currency. The country is forced to run a trade surplus later so it can repay its foreign debt. Massive debt burdens are a tool used to enslave people in third world countries. The political leaders eagerly agree to the loans, because most of the money winds up in their own pockets. During the next recesssion/depression, the massive loans are used as justification to steal people's wealth and savings.

Consider the case of the USA. All the US government's debt is in dollars, a currency the US government controls. Even though the US runs a trade deficit and budget deficit, insiders in the USA can always print new money to pay off their loans.

Consider the case of China, which has a huge trade surplus with the USA. China ships goods to the USA. The USA sends China a piece of paper. Who is getting a better deal, the USA or China?

Pro-State troll economists say "This arrangement is good for China. It provides full employment for workers in China." The following are logically equivalent:

1. China ships goods to the USA in exchange for a piece of paper, as occurs in the present.
2. China's government pays people to manufacture things, which China's government then burns.

To keep exchange rates stable, China prints new yuan (China's fiat money) and keeps a huge dollar reserve. When a business in China sells goods in the USA, it then trades its dollars with China's government for newly printed yuan. Effectively, the USA is exporting its inflation to China. Workers in China are subsidizing the profits of financial industry insiders in the USA.

The custom of keeping dollars as reserves originated in the Bretton-Woods agreement at the end of World War II. Only the US dollar would be gold-redeemable, but only by foreign central banks. Other countries would peg their currency to the US dollar. Besides, it's better to hold Treasury Bonds than physical gold, because Treasury debt earns interest and gold does not. That was defective reasoning, because the dollar-denominated price of gold skyrocketed after the dollar/gold default in 1971. In the present, Treasury debt yields far less than true inflation. Gold is guaranteed to outperform Treasury debt over the next few years. In the present, there is massive inflation to bail out insiders.

The Bretton-Woods agreement led to other countries treating the US dollar as if it were gold. This is invalid, because there is massive inflation of the US dollar. The profits of this scam accrue mostly to financial industry insiders in the USA, who get to print and spend brand new dollars before the rest of the world. The US uses its military might to force other countries to keep using the US dollar as reserves. There have been invasions of countries who were threatening to drop the US dollar. Weapons manufacturing is one industry that the US government has not outsourced to third world countries!

In the context of a gold standard in a real free market, trade surpluses and deficits *MUST* balance out over time. Suppose there were a gold standard, and the USA ran a consistent trade deficit. Then, the supply of gold in the USA would shrink. The money supply would shrink. Prices would decrease. At some point, it would make sense for people in other countries to come to the USA and purchase things with their gold.

When mainstream pro-State troll economists talk about trade deficits and surpluses, they are usually wrong. In the context of fiat money, the US benefits greatly from its trade deficit. People in countries that run a trade surplus are essentially working for free.