Comment by kingkongrevenge | Hacker News Reader

Comment by kingkongrevenge | Hacker News Reader

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kingkongrevenge

> giving up their stuff they get money, which has only one use: getting some stuff back later

It's not just for "getting stuff back." It's capital. It can be used to buy up or create dividend producing assets. Nations that accumulate capital can invest it, and through the magic of compounding interest and capital investment they can race ahead of competitors.

> countries with trade deficits are like new companies that get a loan and go do something useful with it

This way of thinking is so at odds with historical reality I need to know where you encountered it. Every great and ascendant nation has run consistent trade surpluses. Nations with trade deficits are either banana republics or headed that way.

The US trade deficit is not from imported capital goods. The US imports consumer products.

The US now runs a trade deficit with every region of the world. The US has a net trade imbalance in every category of industrial/scientific machinery and high-tech products.

Sorry, there is no way to spin trade deficits as positive.

http://en.wikipedia.org/wiki/Trade_surplus

"Milton Friedman, the Nobel Prize-winning economist and father of Monetarism, argued that many of the fears of trade deficits are unfair criticisms in an attempt to push macroeconomic policies favorable to exporting industries. He stated that these deficits are not harmful to the country as the currency always comes back to the country of origin in some form or another (country A sells to country B, country B sells to country C who buys from country A, but the trade deficit only includes A and B). In fact, in his view, the "worst case scenario" of the currency never returning to the country of origin was actually the best possible outcome: the country actually purchased its goods by exchanging them for pieces of cheaply-made paper. As Friedman put it, this would be the same result as if the exporting country burned the dollars it earned, never returning it to market circulation."

It's worth keeping in mind that trade is not a race or competition. It doesn't hurt us in any way if Europe accumulates wealth quickly.

I think the idea that trade deficits are bad and trade surpluses are good is largely an artifact of the way we talk about it. It wouldn't sound as scary if Lou Dobbs talked about "America's looming capital account surplus," even though a capital account surplus is logically equivalent to a trade deficit. Right now, foreigners are buying up a small share of our capital goods and sending us consumer goods in exchange. At some point in the future, those same foreigners will sell the capital goods and use them to purchase consumer goods from us. In an of itself, neither situation is something to be concerned about.

Our trade deficit is bad because it is combined with an enormous fiscal deficit... we're not exporting anything other than currency and we're simultaneously borrowing positively enormous amounts of money. If we had a trade surplus, we probably wouldn't have to borrow as much money.

> It's worth keeping in mind that trade is not a race or competition. It doesn't hurt us in any way if Europe accumulates wealth quickly.

This isn't quite true. The nations that accumulate capital tend to buy up the high return assets of financially weaker nations. Now that the dollar is tanking, due to the deficits and monetary irresponsibility, you see foreigners snapping up American companies and properties. The dividends from those things are now less likely to be invested here.

Foreigners, who almost by definition have less local knowledge than locals (duh), are more likely to be stuck overpaying for less than premium assets, rather than getting the prime ones. The most talked about European investments in the US as of late seems to have been in Chrysler and subprime mortgages. Hardly stellar examples of high return assets.

Hollywood has been riding high on this principle for decades, sucking in foreign money like a turbocharged vacuum cleaner on crack, and promptly distributing it to themselves, their lawyers, surgeons, trainers and decorators, as salaries and bonuses. All the while, the local insiders/studios keep the choicest releases to themselves. They only need financing 'help' for the risky, read subprime, stuff.

What's really sad, for European savers at least, is that despite being fully aware of this, their homegrown movie industries continue to be an even shittier bet.

As long as America maintains a comparative advantage in producing startups and printing stock certificates, what's wrong with Americans trading these for stuff Europeans are better at producing, like fancy suits and deconstructionist manifestos?

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