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View Diary: Trade Deficits Are Not Born Evil (6 comments)

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  •  budget deficits (0+ / 0-)

    If you're actually saying that budget deficits aren't part of the calculation on the size of the trade deficit, I think you're quite mistaken.  Just because the two don't track exactly doesn't mean there's no cause and effect.  The government may have been dissaving during the recession, but consumers and companies were saving like crazy, more than the government was dissaving.  If the government hadn't run a budget deficit the trade deficit figure would have been substantially different.  As long as there's a budget deficit there's always going to be a trade deficit.

    •  Pure Number vs. Percentage (1+ / 0-)
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      psyched
      If the government hadn't run a budget deficit the trade deficit figure would have been substantially different.

      Budget deficits do not cause a trade deficit.  Whether or not the budget is in surplus or deficit has no bearing on whether or not a trade deficit exists.  Now, if a trade deficit already exists and the government increases spending, then it may cause the trade deficit to increase in pure numbers, but unlikely as a percentage of GDP.  In other words, it won't look substantially different.  The reason is that as the economy expands from federal spending, people will want to buy more goods at the cheapest rate.  For those goods that are cheaper to produce in another country, they will be imported.  For all the other goods, they will be produced domestically.
      As long as there's a budget deficit there's always going to be a trade deficit.

      Not true at all.  If the domestic economy decides to save money at the same rate the federal government is dissaving, the domestic economy would soak up deficit.

      If it's cheaper to produce the goods locally, the trade deficit will not increase - even in pure number - at all.  At least, it won't until the domestic economy truly reaches absolute full employment - a phenomenon that has not occurred since WWII.

      The important thing to note is that federal spending does not cause a trade deficit.  Domestic and foreign policy in our country and our trading partners causes them.

      Our Dime Understanding the U.S. Budget

      by maddogg on Tue May 17, 2011 at 07:19:36 AM PDT

      [ Parent ]

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