Mitchell’s laws: The more budgets are cut and taxes inceased, the weaker an economy becomes. To survive long term, a monetarily non-sovereign government must have a positive balance of payments. Austerity = poverty and leads to civil disorder. Those, who do not understand the differences between Monetary Sovereignty and monetary non-sovereignty, do not understand economics.
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Yahoo Finance
US trade deficit hits $52.6 billion in January
US trade deficit widens to three-year high of $52.6 billion in January as imports hit record
By Martin Crutsinger, AP Economics Writer | Associated PressWASHINGTON (AP) — The U.S. trade deficit surged to the widest imbalance in more than three years in January as imports hit an all-time high, reflecting big demand for foreign-made cars, computers and food products.
U.S. exports to Europe fell, raising concerns that the debt crisis in that region could dampen U.S. economic growth.
Economists are looking for the deficit this year to widen from last year’s $560 billion imbalance, reflecting in part the economic woes in Europe, which represents about 20 percent of America’s export market. A wider deficit can depress economic growth because it usually means fewer export-related jobs.
In January, the politically sensitive deficit with China rose 12.5 percent to $26 billion. Last year, the deficit with China hit a record $295.5 billion, the highest deficit ever recorded with a single country.
At a time of high unemployment in the United States, political pressure is growing to impose economic sanctions on what critics see as China’s unfair trade practices such as a currency regime that keeps the yuan undervalued against the dollar, making Chinese goods cheaper in U.S. markets and American products more expensive in China.
So there you have it. Our problems are not of our own making. It’s all China’s fault.
Now let’s get real. Why does a trade deficit negatively affect unemployment and economic growth? The answer is quite simple: Money supply. A trade deficit removes dollars from the U.S. economy.
Remove dollars, and consumers have fewer dollars to spend, which means less sales volume for businesses, which means less profits, which means job cuts. In short, unemployment is not caused by “shipping jobs overseas,” as so often is claimed. We’re shipping dollars overseas, and this dollar loss reduces consumer spending. When consumers don’t spend, we have unemployment. Period.
Now, you rightly may ask, how is it possible for a nation — a Monetarily Sovereign nation having the unlimited ability to create dollars — how is it possible for that nation to run short of dollars?
Answer: It isn’t possible, except for one small detail: Economic ignorance. Congress doesn’t know the U.S. is Monetarily Sovereign, so it restricts dollar creation. Then it blames the resultant job loss on China (and President Obama, if you’re a Republican).
No, Congress. No, Republicans. The job loss is not China’s fault; it’s yours. Those dollars, you easily can create, are flowing to China, and you’re not replacing them fast enough.
So here’s the plan — no, not developed enough to be called a “plan” — call it a “concept.” Every quarter, the federal government should replace the trade deficit. It should send the amount of the trade deficit to the American consumers, dollar for dollar.
It could be in the form of mailed checks — something resembling the very first stimulus attempt in 2008. The result: Consumers would continue to have spending money, businesses would continue to thrive and hire employees, and at long last, Congress could stop blaming China for its own mistakes.
Now is that so hard?
Rodger Malcolm Mitchell
http://www.rodgermitchell.com
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No nation can tax itself into prosperity, nor grow without money growth. Monetary Sovereignty: Cutting federal deficits to grow the economy is like applying leeches to cure anemia. Two key equations in economics:
Federal Deficits – Net Imports = Net Private Savings
Gross Domestic Product = Federal Spending + Private Investment and Consumption + Net exports
#MONETARY SOVEREIGNTY
#Monetary Sovereignty - Mitchell 
It’s just so flippin’ easy. These past few years, Paul Krugman has been great at condemning austerity, but he hasn’t optimally articulated the easiest way to end this downturn in a flash: send Americans fat checks from the federal government and don’t stop until we reach full employment.
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Right.
Just add to the end of your comment, ” . . . full employment or inflation we can’t control with interest rate increases.” That should appease the debt-hawks who continually fret that we are about to become the Wiemar Republic or Zimbabwe.
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Yup, the trade deficit acts exactly like a federal tax. The checks would be just a rebate for this tax. Had the exact same idea a while ago. Might be a bit hard to determine how much of the cost of each consumer product imported goes to foreign saving, but the idea is clear.
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RMM and others,
I think you’re either forgetting or ignoring something: when the U.S. government sends out checks to Americans, what makes you think much of that new money will now be spent domestically (and therefore stimulate domestic demand)?
Some of that money will be saved. Some will be spend domestically. But remember, the reason we have a large trade deficit is because it’s cheaper to buy the things we want from abroad than from home. So… won’t this new money just exacerbate the current account deficit?
How is this a solution?
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The vast majority of dollars are spent domestically.
But no matter. If (taking an outrageously extreme example) only half the dollars were spent domestically, the government simply could double the payout, to make sure domestic dollars — the ones that count most — do not decline.
Also, dollars going overseas enrich our trading partners, so some do come back as exports.
Rodger Malcolm Mitchell
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RMM,
Good point. Considering those numbers, that makes our trade deficit seem very insignificant. Why are we even concerned about a trade deficit that is less than one half of 1% of GDP?
I guess that raises another interesting question: how can such s relatively small “demand leakage” have a dramatic affect on domestic aggregate demand? My suspicion is that it’s not so much our trade deficit that is the problem, rather we are just being taxed too much.
This is interesting.
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Erm guys unless im missing something
the trade deficit for the whole of last year was 560 billion v a GDP of 13351 thats a way bigger percentage than 1 half of 1 percent
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Nobody is forgetting or ignoring anything. The whole problem is in thinking of trade deficits as problems which need a solution. Trade deficits are a benefit. Somebody is selling you stuff cheap. Time to stock up on the bargains! Sure, in normal times some countries might want to have balanced or surplus trade. But when things are really dire – during or after a war – everybody uses MMT/MS/FF. Everyone wants to have a trade deficit & fast. If Europe did not have a giant trade deficit after the war, and the US a giant surplus – millions of Europeans would have starved to death. Many did as it was. Having a trade deficit = being the recipient of a Marshall Plan.
You’re right that there might be a real problem in getting the checks to hit the deficit on the nose, but that doesn’t really matter. The idea is just to roughly offset foreign saving in dollars, which is just like any other saving. Saving is deflationary & should be offset. If the deficit continues, then good. We are getting real wealth, and as long as we don’t just destroy it, don’t allow the deflationary effects to cause mass unemployment, we are getting a real current benefit. If it doesn’t continue, that means the dollar may be falling, and/or foreigners are buying up more US goods and assets with the dollars they have saved. In either case, nothing bad is happening. The bad things from trade come solely from NOT “sending out the checks”.
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JK,
Right, and China is only a fraction of that small number. But blaming China for our ills is a popular Congressional sport.
And yes, we are taxed way, way too much.
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