Saturday, September 09, 2006

Balance and the Balance of Trade

In Nicholas Johnson, "Ya Don't Play-a Da Game . . .," September 6, 2006, I wrote, in part:

"President Clinton said something to the effect that 'we have more problems than we deserve, and more solutions than we've ever tried.' However important you may think the issues of 'God, guns and gays,' or the 'war on terrorism' (and Iraq), may be, there is a lot more we need to talk about.

"There's no room to list everything, but universal health care (and basic public health measures), reversing the ever-increasing multi-trillion-dollar debt and adverse balance of trade, energy policy (including global warming), and attempting to rebuild positive international relations come immediately to mind as examples." (emphasis supplied)

James Eaves-Johnson soon responded with this comment added to the blog entry:

"Just one comment: There is no such thing as an 'adverse balance of trade.' My household has a so-called 'adverse balance of trade.' I import almost everything and export almost nothing (except occasional 'exports' to Goodwill). Most of my assets are financed with foreign investment (most of my assets being my home, and foreign investment being a mortgage). I am better off for this arrangement. America is too. Do we really want more manufacturing jobs or less foreign investment? I prefer that we have excellent professional services and a high credit rating than a so-called 'favorable balance of trade.'

"Other than that, great piece.
"9/06/2006 10:01:39 AM"

Now I'm grateful for the basically positive "review," and I'm the first to concede I have no credentials as an economist, but a couple days later, going through old papers during a plane ride, I got around to reading the New York Times for September 6 and found that a fellow who does have those credentials seems to share some of my concern.

I don't mean to use this is a "'tis-t'ain't" argument -- like I say, I don't really know what I'm talking about -- but I think the economic condition of the U.S., the significance of our multi-trillion-dollar-debt owned by the Chinese and others, and our "adverse balance of trade," strike me as potentially sufficiently significant that I thought it worthwhile to share this gentleman's insight, and to bring the discussion out of the "comments" portion of the blog and into a new blog entry.

The article is Steven R. Weisman, "U.S. Trade Deficit Is Called a Threat to Global Growth," The New York Times, September 6, 2006, p. C7.

It is largely a report of a speech by the Managing Director of the International Monetary Fund, Rodrigo deRato. I'll quote just three paragraphs from the story:

"Mr. de Rato's warning about imbalances, one of many from financial experts in recent months, is to be taken up at the annual meeting of the directors of the I.M.F. and the World Bank this month in Singapore.

"The Bush administration has said that while it is concerned about trade and current-account balances, there is no cause for alarm because countries will continue to lend the United States money to finance the deficits.

"But many economists warn that the United States cannot sustain its current $800 billion annual trade deficit, which has led to trillions of dollars in dollar-denominated reserves being held by China and other Asian countries, and by Saudi Arabia and the other major oil producers."

At least he's one economist who seems to feel, contrary to James Eaves-Johnson, that perhaps America is not "better off with this arrangement."


Anonymous said...

My comment is under Royal Flush
evidently I scrolled down too far.

Nick said...

In his comment about this blog entry (located, as he indicates, following the next entry) John Neff suggests that there are "foreign policy implications" as well, that we go easier on the Chinese than we might otherwise.

Of course (another way of saying "to me"), he's right.

And we take a double whammy in this regard.

(1) We are buying far more from the Chinese than we are selling to them. That's the "adverse balance of trade."

(2) But we are also using "debt" as the source of funds to provide the tax cuts to the rich, and to fight this "no sacrifice" war. (I.e., we don't pay more taxes to pay for it as we go; we don't have a draft to put the children of the middle and upper classes in harms way; we asked nothing of Americans after 9/11 except to follow the President's suggestion that we "go shopping.)

The Chinese are our "creditors" in that sense as well.

Taken together, yes, we are wisely reluctant to anger them to the point of nudging them into retaliating by collapsing our economy.

It is the modern day way of invading and taking over another country without firing a shot, or losing any lives.

-- Nick