The Problem with Trade or Balance of Trade Deficits
By T. Edward Westen
As someone who is forced to watch the public policy nonsense coming out of 1600 Pennsylvania Avenue for the past sixteen months (I have to, I am an American citizen), I have pondered the President’s fixation on the balance of trade between nations.
If this were August 14th, 1971 and the US had a trade deficit with another country, that country could demand we pay up in gold. Theoretically that would diminish the US’s net worth. However, on August 15th, 1971, then President Richard Nixon stopped honoring foreign debuts by paying in gold. Beginning, August 15th, 1971 we had only U.S. Dollars with which to make good on the imbalance of goods and services imported versus goods and services exported.
Somehow, the current President thinks paying for goods and services with U.S. dollars is a problem: “They will have all of our money.” Sorry, Mr. President, but someone should tell you that most of that money they will have exists as book keeping entities. Some will be paper currency, but still what is the paper currency worth? OK, so it is money. But it is only valuable because people think it is valuable and because the US Government insists those pieces of paper (or electronic representations of those pieces of paper) are “. . .legal tender for all debts public and private.”
So, at base, what does a trade deficit between the US and another country (or the world for that matter) involve? It means they give us goods and services and we give them pieces of paper (or electronic representations of the same) with the words on them that say, “this note is legal tender for all debts public and private.” You see, the only problem with trade deficits is that ‘deficit’ has negative connotations in the President’s mind. Someone needs to tell the President how these notes are created and let him in on the scam we are running against the rest of the world before he queers it for us.