PeakTrader.com

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http://www.blogger.com/comment.g?blogID=28997633&postID=2411278221821646775

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PeakTrader said...

Jet Beagle, trade deficits slow domestic growth.

If the U.S. has a $500 billion trade deficit, who do you believe produced those net exports?

Also, if a $1.5 trillion budget deficit is reduced by trade deficits, how does that increase domestic growth?

A simple example is say you purchase $10,000 of foreign goods each month and the producer purchases nothing from you each month.

The producer immediately lends you the $10,000 each month and you buy gold.

The producer's output increases by $10,000 each month and he may need to hire more workers.

Your output (of goods & services) is zero (except perhaps you pay a fee for services to buy the gold).

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Jet Beagle, yes I read it, and it doesn't change the fact that trade deficits slow domestic output.

Basically, when foreigners exchange their goods for U.S. Treasury bonds, that either finances government spending, lowers taxes, or reduces the budget deficit (or increases a budget surplus), i.e. contractionary fiscal policy, which doesn't promote growth.

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Jet Beagle, I think, you misunderstood what I said, like you misunderstood the Fed article.

The federal government can do three things with more revenue:

1. Pay for more spending - Expansionary fiscal policy.
2. Cut taxes - Expansionary fiscal policy.
3. Reduce the budget deficit (or debt) - Contractionary fiscal policy.

When U.S. trade deficits increase, foreigners can buy more U.S. Treasury bonds.

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Selling U.S. Treasury bonds is a source of government revenue, like collecting taxes, which can reduce budget deficits or create a budget surplus.

The market determines interest rates on Treasury bonds. Trade deficits increase demand for Treasury bonds and reduce interest rates, which benefit the government.

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If it weren't for trade deficits, annual interest expense, on the national debt, would be substantially higher.

So, trade deficits reduce budget deficits.

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