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  1. James J permalink

    Where does your assumption that the current account deficit have to be ‘solved’ come from?

    Answer: It comes from the gold standard, but the gold standard ended in 1971, nearly 50 years ago.

    Under the gold standard, the USA had to make up the imbalance in gold – which would clearly be a problem, but today China sells TVs to America and China gets dollars and that’s it. End of deal. China doesn’t then get a balancing payment in gold as it would in the days of the gold standard.

    Americans have Chinese TVs and China has a bunch of dollars, and presumably everyone is happy or the trade wouldn’t have happened.

    To think that there is now a problem, when the US can make as many Dollars as China wants to hold onto, is a big leap.

    This is thinking from the gold standard era which is a totally different fixed-rate system to today’s floating rate system. Under a floating rate system, whoever gets the most stuff wins the real terms of trade.

    Likewise Trump’s foolish remarks about Germany’s trade surplus. American’s get to drive cars that Germans made and the Germans get Dollars in return. That’s it, end of trade. If the Germans didn’t want those Dollars they wouldn’t have sold the cars. And if they would prefer to save the Dollars rather than spend them, then that’s very easy for the US Govt to offset, as it indeed does.

    It should be a little alarming to you that you are using thinking which is nearly 50 years out of date to decide that something is a ‘problem’ today, when we operate a totally different floating rate system today..

    • Thank you James for your comment. I have to oppose your opinion about imbalance of US trade. It is a law of nature that imbalance,  any kind of imbalance, have to be balanced. The question is not if it has to happen, but how and when it will happen. By long term smooth gradual process like the erosion of mountain, or a suddenly change like in the cases of earthquakes. If the Chinese accumulate big amount of dollars, they can manipulate the US economy. Other phenomena is, that production skills of the US will degradate, while the Chinese will be strengthen. On the other hand the US economy will be more and more focused on monetary activity, since the dollar has become the a major production and export item of the US economy. If these phenomena you find positive  be it so, but do not believe such a process can continue to the infinity. By definition debt is covered by newly printed Dollars, and  our world is finite, so most be limited the amount of US dollars issued. If it will not be limited by inteligable decision, it will happen by some kind of unexpected, unpredictable crisis.

      The denial of need for equilbrium in economy is the same political problem as the denial of the need to balance the environment. Take Donald Trump’s policy in any field of economc issues. Environment, taxation, inequality of income, foreign relations, you name the rest. In all these fields his policy is based on phantasy and denial of basic facts of reality. Unfortunately economic and political process are long term and exceed ​the four year term of US presidency. US economy is like a big ship, you have to start to slow down hundred kilometers before you enter the port, otherwise the crash is inevitable.

  2. Hellow my name is June and I’m a writer and this article really aided me. I’m refocused! Thanks very much!

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  1. The way out from WWII was the Marshal plan- | EugenR Lowy עוגן רודן
  2. The way out from WWII was the Marshal plan | EugenR Lowy עוגן רודן
  3. http://economistsview.typepad.com/economistsview/2013/07/paul-krugman-defining-prosperity-down.html#comment-6a00d83451b33869e20192abeb336e970dThe way out from WWII was the Marshal | EugenR Lowy עוגן רודן

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