An alternative to popular faith
Here we go, again. The typical beggar-thy-neighbor approach to international trade.
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6/10/10: By David Lawder; WASHINGTON (Reuters) – Treasury Secretary Timothy Geithner said on Thursday that reform of China’s exchange rate is “critically important” to the U.S. and global economies and a more flexible yuan was in China’s interest.
[…]
In his testimony, Geithner said the Obama administration wanted China to change policies that disadvantage American companies and to provide a more level playing field for U.S. products and investments. He vowed the administration would “apply forcefully” all remedies available under U.S. law to curb China’s unfair trade practices, including anti-dumping and countervailing duty complaints.
[…]
“A stronger yuan would benefit China because it would boost the purchasing power of households and encourage firms to shift production for domestic demand, rather than for export,” he said. “[…]which is particularly important now, with China’s economy facing a risk of inflation in goods and in asset prices.”
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Think of it this way. When two nations each have the unlimited ability to create money, which nation benefits from a positive balance of trade? That is, which nation benefits when one sends more of its goods and services to the other?
In CHINA TRADE we saw that the nation exporting fewer resources (i.e. exporting more, easily created money), has the advantage. The Obama administration seems to believe international trade is a zero-sum game, where for every “winner” (net goods and services exporter) there is a “loser” (net goods and services importer). So in their minds, for the U.S. to be a winner, we must make sure there are enough nations that are losers – as I said, the beggar thy neighbor approach to international trade.
The technical truth is, the U.S. could we wealthy without exporting a single dollar’s worth of goods and services. Visualize that our exports were zero and the U.S. government were the sole “export” customer. Rather than exporting steel, sausage and services, the government would buy all this output. No, don’t get excited. I don’t suggest we stop exporting. I’m just trying to demonstrate a point.
Could the government afford it? Yes, the government has the unlimited ability to create the money to afford anything. Would our industries suffer? No, they would receive the same money as if they actually had exported. Would this increase the money supply to inflationary levels? No, the total money within the economy would be the same as if it had come in from other nations.
Yes, we’d have to solve the problem of what we do with all the goods and services we produce (Create new industries for this purpose??), but the U.S. literally could survive and prosper with no exports at all – as though it were the only nation on earth.
The Obama administration merely has set up China as a straw man, to take the blame for our economy’s failure to grow as fast as it should. But, the real blame should go to the debt hawk belief that federal deficit spending should be minimized. For years, our stimulus efforts have been too-little, too-late, and even today, while growth is painfully slow, and millions are out of work, there is more concern about so-called debt (i.e. money created) than about economic success.
Rodger Malcolm Mitchell
http://www.rodgermitchell.com
No nation can tax itself into prosperity
#Monetary Sovereignty - Mitchell 
Rodger,
You say:
No nation can tax itself into prosperity
I say:
Or, spend itself there!
Mike
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Are you saying the government should not have deficit spent to get us out of the recession?
A growing economy requires a growing supply of money. Government spending creates money.
Rodger Malcolm Mitchell
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Bank lending creates money. And, the government doesn’t have to spend or borrow for the creation to occur.
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So, you feel it’s better for America if people go deeper into debt than if the government goes deeper into debt?
People go bankrupt. The government never does.
Rodger Malcolm Mitchell
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I guess I realize the difference in people being able to use the added debt to create useable goods and services and the government creates nothing but money. The difference in actual growth in GDP and growth in gov’t red ink.
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So, you think government spending does not create usable goods and services? What are the biggest areas of government spending to which you refer?
Rodger Malcolm Mitchell
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You know that one of us is an idiot. The reason for that assessment is that you can’t convince an idiot, through argument, that they are wrong. That being said, why waste the time in argument?
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Don’t despair, Mike. There is a simple solution. Merely ask yourself, “What evidence would convince me I’m wrong?” The idiot is the person who can’t or won’t answer that question.
I say a monetarily sovereign nation can spend itself into prosperity. If I saw that recovery from recessions did not require increased deficit spending, or, if I saw the federal government unable to pay its bills, or if someone could show me how federal spending depends on taxation, I would be convinced I’m wrong.
What evidence would convince you?
Rodger Malcolm Mitchell
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What evidence would convince me I’m wrong.
I say a monetarily sovereign nation must adhere to the same economic principals established for any nation governed by a rule of laws, and established by or with a constitution providing for certain responsibilities of that government.
If I could see evidence of any government, sovereign or not, which had at any time in the past, or present, granted itself unlimited ability to print money without any regard to those established laws and economic responsibilities and had increased monetary supply without any evidence of widening of the inflation percentage or a wider separation of the masses in regards to wealth distribution, I would say I am wrong. To this date in history there has never been any evidence of this occuring. In fact, there has never been a nation which survived the establishment and operation under a fiat currency for a prolonged period. In fact, your acceptance of the fact that recovery from recessions requires “increased” deficit spending is proof of my position. You posit an idea that has never worked throughout the history of the world. Each time it has been tried at any level, it has resulted in failure. The proof is in the pudding. Today it takes nearly 3 times as much added debt to produce a dollar increase in GDP as it did merely 30 years ago.
I have never said you are not right in your presumption that the US government does not have to tax in order to print money. I have never said the government does not have the unlimited ability to print as much money as it deems necessary. My position has always been that the continued printing of paper money without consideration of established laws and economic principals is slowly but surely leading to the collapse in the value of our monetary system of paper money. And, eventually the collapse of our economic system if not stopped before it is too late.
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To which constitutional laws do you refer?
If I told you the federal debt will be $180 trillion by 2040 — a 1500% increase in the next 30 years — what would be your prediction for America?
By the way, what is your evidence our monetary system is collapsing?
Rodger Malcolm Mitchell
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see my article which is much along the same lines:
http://www.forbes.com/feeds/prnewswire/2010/04/13/prnewswire201004131029PR_NEWS_USPR_____NE85487.html
http://www.moslereconomics.com
http://www.moslerforsenate.com
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Thanks Warren,
You may be the single most knowledgeable person, with regard to our economy, I’ve known, and it’s an honor to have your comments on my blog.
As you know, the vast majority, including even economists who should know better, are caught in anthropomorphic economics, whereby they believe federal government finances are like their own finances. So they are anti-deficit, not understanding that deficit spending is necessary for a growing economy.
The really sad part is their intuition has completely closed their minds to facts, which they neither have nor seek nor welcome.
Rodger Malcolm Mitchell
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I agree with you Mr. Mitchell. We must spend whatever it takes to put people back to work. The more our people are working, the better our country becomes. The work that the unemployed could be doing if they were employed is work that we can never recover — lost forever.
Naysayers please keep this in mind: When we buy an imported car, we get the car, they get dollar bills (pieces of paper). The money is worthless until the money is paid back for goods or services to American companies.
China is spending some of our dollars by hiring our contractors to build things for them in their country. That is to their benefit. At the same time, China has, bit by bit, become aquainted with and accepting of our way of life. Now they are beginning to live it themselves.
We have come a long way from ‘ping-pong diplomacy.’
Patrick Murray
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“Naysayers please keep this in mind: When we buy an imported car, we get the car, they get dollar bills (pieces of paper). The money is worthless until the money is paid back for goods or services to American companies.”
Exactly right. China exports it’s resources plus it’s blood sweat and tears. We export our dollars, which our government creates at the touch of a button. Who has the better deal?
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