CHINA and KUWAIT : believe it involves ...

[Tornado Red]

Originally Posted By: Gary Allan

Quote:

Remember that trade does not take place between countries, it takes place between individuals.

Sorry, that's not "completely" true. How is a trade imbalance settled? What happens when there's a $1B trade deficit?

That trade deficit, roughly equivalent to the current account deficit, is counter-balanced by a capital account surplus. If the people in Country C are not buying enough products from Country U, then they are accumulating dollars or dollar-denominated securities. When they have more of these securities than they want to hold, they try to trade them for something else like yen or rubles or yuan. When the people in all countries have more than they want, when they are all looking to dump surplus dollars, then the value of those dollars declines. (Note that a trade deficit alone does not trigger dollar weakness, only more dollars floating around than what people want to hold. Also remember that money has several purposes including a medium of exchange and a store of value. And the usual method of making a currency more valuable is to raise the interest rates, to encourage people to hold more of it and not dump dollars on the market.) Sometimes governments try to impose currency regulations, to limit the ability of citizens to trade their depreciating currency for others which maintain their values. I think Great Britain did this after WWII until the 1960s -- which created a lucrative black market. I think I said this before, but tariffs are taxes on consumers. Small tariffs result in tax revenue because they do not discourage purchases to any major extent. Big tariffs produce little revenue because no one pays them. I suppose a big tariff on steel or lumber or cement benefits domestic producers, because there are few or no substitutes. But a big tariff on fruit or chickens can result in a change in consumption patterns, leading to more demand for other items. BUT recognize who is buying these goods, or not buying them: individual consumers, not the countries where they reside.

 

[Gary Allan]

Yes, but capital alone only give the appearance of worth. If indexed for debt, it takes on a different appearance. When we were in double digit inflation the world was screaming because all of the global capital was sunk deep into the US for the 15% ROI. In a mixed bag of "good" and "not so good - because" at one time the entire global export capacity fit into the USA's export numbers ..except ..and the conspicuous tally ..China. At that time it was only $500B. That is, on balance 100% of China's "expansion" was 100% fueled by U$D. We have our given channels of manipulation that serve (hmm ..that term) "us" well. $$$ for petroleum mean you have to have them. This makes everyone have to slave away for U$. Our Ag sector takes a good chunk in subsidized exports ..making farming in many nations a money losing proposition. Funny, tariffs are evil ..but subsidizes are good if you're in concert with the big scheme of things. I guess it depends on who's court you want to keep the ball in. There's that "us" distinction that gets a little nebulous in conversation.

 

[Shannow]

Originally Posted By: Tempest

When will we run out of oil?

How much is left, and whats the rate of growth in consumption. Plus or minus 10% (relative) is close enough to satisfy me.

 

[Tornado Red]

Originally Posted By: Gary Allan

Funny, tariffs are evil ..but subsidizes are good if you're in concert with the big scheme of things. I guess it depends on who's court you want to keep the ball in. There's that "us" distinction that gets a little nebulous in conversation.

Low tariffs, like low income tax rates and low sales tax rates, are relatively innocuous; high tariffs are bad. I would save the term "evil" to describe the politicians and their motives. Subsidies and tariffs tend to benefit the politically-favored groups, at the expense of everyone else in the society. The recent decision to raise the tariff on imported tires from China will punish low-income consumers who cannot afford expensive tires. And the effect will be to push up prices on tires in all categories. It will favor a relatively small number of union workers in the domestic tire industry. There is a problem with China -- its currency is too cheap relative to the dollar. Nearly all our complaints would go away if the yuan was allowed to float and not be pegged to the dollar. I know some economists favor stable currency rates, but in the real world floating currencies adapt gradually to changing conditions. "An economy cannot simultaneously maintain a fixed exchange rate, free capital movement, and an independent monetary policy. It can choose any two for control, and leave the third to the market forces." China pegs against the dollar, has an independent monetary policy, but lets capital flow relatively freely. So until it floats the yuan, it cannot really control capital flows or reduce the size of its trade surplus. Every effort to increase the volume of imported goods will be as ineffective as President Ford's "WIN - Whip Inflation Now" buttons.

 

[Gary Allan]

Well, I don't agree. Enabling or enhancing the easy transfer of wealth, and allow diminished domestic manufacturing in the process ..not out competing it ..but just out pricing it with cheap goods so that the better product is no longer viable to exist, is not a good thing. Destroying our people's ability to pay for themselves is self defeating as a national policy ..regardless of who is "inconvenienced" in the process. More "poor" aren't going to fix anything. It's a long way down until China has to put the money back to get any value out of it.