–Oh woe! Here we go again: The phony trade-deficit hysteria

Twitter: @rodgermitchell; Search #monetarysovereignty
Facebook: Rodger Malcolm Mitchell

Mitchell’s laws:
●Those, who do not understand the differences between Monetary Sovereignty and monetary non-sovereignty, do not understand economics.
●The more federal budgets are cut and taxes increased, the weaker an economy becomes. .
Liberals think the purpose of government is to protect the poor and powerless from the rich and powerful. Conservatives think the purpose of government is to protect the rich and powerful from the poor and powerless.
●Austerity is the government’s method for widening
the gap between rich and poor.
●Until the 99% understand the need for federal deficits, the upper 1% will rule.
To survive long term, a monetarily non-sovereign government must have a positive balance of payments.
●Everything in economics devolves to motive,
and the motive is the Gap.

Oh woe! Here we go again: The phony trade-deficit hysteria. Seldom has so much Henny-Penny, sky-is-falling BS been packed into one short article.

OpEdNews Op Eds 3/7/2015
Trade Deficit Drops To Enormous, Humongous Level In January
By Dave Johnson

The U.S. Census Bureau reported Friday that the January goods and services trade deficit was $41.8 billion in January, down $3.8 billion from $45.6 billion in December.

Since the neo-liberal “free trade” pro-corporate ideology took hold in the late 1970s the US has consistently run a trade deficit every single year, and it just gets worse. This literally drains our economy, jobs, wages, factories, entire industries and our ability to make a living as a country.

Rep. Alan Grayson Explains Trade Deficit Harm:

“Day after day, month after month, and year after year, Americans are buying goods and services manufactured by foreigners, and those foreigners are not buying goods and services manufactured by Americans.

“We are creating millions — no — tens of millions of jobs in other countries with our purchasing power, and we are losing tens of millions of jobs in our country, because foreigners are not buying our goods and services.

“What are they doing? They’re buying our assets.

“So we lose twice. We lose the jobs, and we are driven deeper and deeper into national debt — and, ultimately, national bankruptcy. That is the end game.

“That’s why we have the most unequal distribution of income [among all industrial nations] in our country, [and] the most unequal distribution of wealth in our history.

“Let’s not only have a trade policy. For once, let’s also have a trade deficit policy.

“Let’s deal with the reality that has robbed the American Middle Class now for decades. Let’s address it, and let’s defeat it. That’s what I’m calling [for], right now.

“Let’s stop digging deeper. Let’s raise ourselves up, let’s climb out of this hole, and rebuild the American Middle Class. Thank you very much.”

First, let us dispense with the notion that a trade deficit is harmful and that a trade surplus would be better. We wrote about this myth way back in 2009:

The China trade deficit myth Thursday, Nov 19 2009

A trade deficit is an example of one country devoting great effort to creating scarce materials for another country in exchange for something that requires no effort by the other country.

In that sense, China is our servant. They work, sweat and strain and use their valuable resources to create and ship to us the things we want, while we, hardly lifting a finger, ship dollars to them.

Who has the better deal?

As readers of this blog know, the federal government creates unlimited dollars at the touch of a computer key. It does so by sending instructions to its creditors’ banks, telling the banks to increase the balances in the creditors’ checking accounts.

That is how the federal government pays its bills.

At the instant the banks comply with these instructions, dollars are created — yes, created from thin air. That is the reality of Monetarily Sovereign finances.

It is possible (and commonplace) for the U.S. to run short of various food items, various ores and various manufactured items. It even is possible for us to run short of labor. But it is absolutely, positively impossible for us to run short of dollars (unless Congress demands “debt limits”).

When we run a so-called “trade deficit,” we receive goods and services that may be in short supply here, and in exchange we send U.S. dollars, which are in infinite supply to us.

When we receive more goods and services than we send, why do we call it a “trade deficit,” when receiving more than we send really is a “trade surplus“?

As for “robbing the American Middle Class,” this is the old, “Blame the opposition for your own crimes” ploy. Nothing has done more to rob the “American Middle Class” than the Congressional programs to cut federal deficit spending.

The vast majority of federal spending benefits the middle and lower income/wealth/power groups. From Social Security to Medicare to Medicaid to all the poverty aids to federal construction projects — federal deficit spending benefits the very people Rep. Grayson pretends to love.

So Congress increases FICA (the most regressive tax in U.S. history), while forcing the states, counties and cities to rely on sales taxes (the 2nd most regressive taxes in U.S. history). Meanwhile, Social Security benefits have decreased and many programs benefiting the poor and middle classes cut — and all the while, Congress proclaims its everlasting affection for the “American Middle Class.”

Does it get any phonier than that?

And as for the loss of dollars involved in a “trade deficit,” here’s a very, simple solution:

How to defeat that huge, frightening, trade deficit, Chinese dragon — in one simple step Friday, Mar 9 2012

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.

And as for Rep. Grayson’s “concern” about the loss of jobs, if the above-mentioned checks don’t replace enough lost income, the federal government simply should buy more goods and services from American suppliers.

Spend more on roads, bridges and dams, more on schools and teachers, more on R&D, more on building things, creating things, discovering things. There is no limit to the goods and services the federal government can buy.

Or very simply, begin to institute the “Ten Steps to Prosperity.”

Bottom lines:
1. The thing we misname “trade deficit” actually is a “trade surplus,” and is a benefit to the U.S.
2. Congressional “cut-the-debt” policies, not the so-called “trade deficit,” are responsible for the loss of jobs and the widening of the Gap between the rich and the rest.

Congress has failed to help the “American Middle Class,” but Congress is very good at two things:
— Spouting the Big Lie
— and pointing fingers of blame.

Rodger Malcolm Mitchell
Monetary Sovereignty

The Ten Steps to Prosperity:

1. Eliminate FICA (Click here)
2. Federally funded Medicare — parts A, B & D plus long term nursing care — for everyone (Click here)
3. Provide an Economic Bonus to every man, woman and child in America, and/or every state a per capita Economic Bonus. (Click here) Or institute a reverse income tax.
4. Federally funded, free education (including post-grad) for everyone. Click here
5. Salary for attending school (Click here)
6. Eliminate corporate taxes (Click here)
7. Increase the standard income tax deduction annually. (Refer to this.)
8. Tax the very rich (.1%) more, with higher, progressive tax rates on all forms of income. (Click here)
9. Federal ownership of all banks (Click here and here)
10. Increase federal spending on the myriad initiatives that benefit America’s 99% (Click here)

Initiating The Ten Steps sequentially will add dollars to the economy, stimulate the economy, and narrow the income/wealth/power Gap between the rich and the rest.

10 Steps to Economic Misery: (Click here:)
1. Maintain or increase the FICA tax..
2. Spread the myth Social Security, Medicare and the U.S. government are insolvent.
3. Cut federal employment in the military, post office, other federal agencies.
4. Broaden the income tax base so more lower income people will pay.
5. Cut financial assistance to the states.
6. Spread the myth federal taxes pay for federal spending.
7. Allow banks to trade for their own accounts; save them when their investments go sour.
8. Never prosecute any banker for criminal activity.
9. Nominate arch conservatives to the Supreme Court.
10. Reduce the federal deficit and debt

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.
1. A growing economy requires a growing supply of dollars (GDP=Federal Spending + Non-federal Spending + Net Exports)
2. All deficit spending grows the supply of dollars
3. The limit to federal deficit spending is an inflation that cannot be cured with interest rate control.
4. The limit to non-federal deficit spending is the ability to borrow.

Monetary Sovereignty

Monetary Sovereignty

Vertical gray bars mark recessions.

As the federal deficit growth lines drop, we approach recession, which will be cured only when the growth lines rise. Increasing federal deficit growth (aka “stimulus”) is necessary for long-term economic growth.


21 thoughts on “–Oh woe! Here we go again: The phony trade-deficit hysteria

  1. McClatchy had a front page article in the Seattle Times today stating that retiring Baby Boomers would soon overload Social Security so that SS, Medicaid, Medicare, and other “entitlements” would have to be cut or the debt would be unsustainable. Same old, same old. I’m on Railroad Retirement but I’m sure it’s unsustainable too. I’ll ask Paul Ryan and Scott Walker, my heroes.


  2. RMM-

    One minor thing that I’d like to point out about your description of how the Govt creates dollars via spending….

    “It does so by sending instructions to its creditors’ banks, telling the banks to increase the balances in the creditors’ checking accounts.”

    The Govt doesnt just send instructions, it sends currency. The banks dont mark-up their customers’ deposit accounts only because the Govt tells them to, the private banks do so because they receive reserves to their accounts at the Fed. The Fed marks up the private banks checking=reserve accounts at the Fed and the private banks mark up customer accounts. So its not just instructions, the federal govt sends financial assets to the banks (reserves).


    1. The sooner you understand that U.S. currency has no physical existence (so it cannot be “sent” anywhere), the better you will understand the realities of money. You never have seen, felt, tasted, smelled, heard — or sent — a dollar.

      The government sends instructions to private banks and to the Federal Reserve Bank.

      By contrast, when you pay a bill, your instructions go to your creditor’s bank and ultimately to your bank.

      Look at your check. It contains the instructions: “Pay to the order of:”


      1. Thanks RMM, but I understand just find. You are simply overlooking an important point, which is that the private banks receive a financial asset from the Govt in exchange for increasing their financial liabilities (customer deposits) in the way you are writing about the process.


          1. Its not necessarily that you implied the banks take a loss its that the Govt doesnt just send instructions to the private banks, they also give them a matching financial asset. Like I said originally, its a minor point, just being thorough.


    2. Auburn,

      I am 100% sure you have never, ever worked in banking. Ever…

      There are two types of reserves, (1) is what banks are supposed to hold in terms of deposits and the other are the funds kept at the central bank or clearing house for the purpose of settling payments.

      1) The Central Banking authority sets a minimum reserve which banks are supposed to hold when they receive deposits. For instance, if the Federal Reserve sets the reserve requirement to 8% than the banks are supposed to hold $8 dollars for every $100 dollars they receive in deposits. The bank is able to lend the remaining $92 dollars. It is the definition of fractional reserve – as you keep a “fraction” of deposits.

      2) Not all banks can clear US dollar payments, banks have to have a funding account as well as strict membership requirements be part of the Federal Reserve system FIRST. There is also a minimum requirement for this. Only a limited number of banks actually have an account at the Fed and CHIPS (the other US clearing system). A bank cannot clear payments via the Fed if their account is not funded first. Banks that have a lot of volume may be clearing billions at a time – in order to do that, they would have to have the funding at the Fed. For example, if you want to clear a maximum of $500 billion in one shot, than you will need to fund the account with $500 billion. So don’t ever think that your local bank can settle payments via the Federal Reserve – most likely your bank is handing off to one of the large ones that does have access to the Fed (i.e. Chase).

      These accounts have nothing, zilch, nada to do with Federal spending.


      1. You have clearly demonstrated that you understand neither banking or accounting. Thats impressive. Banks dont just increase their own liabilities for nothing (customer deposits) they only do so on behalf of Govt spending because they are getting an equal amount of financial assets (reserves). Thats banking 101.


    1. According to the graph, since 1970, the 99%’s income barely has budged — up a puny $4K. The 1%’s income has more than tripled — up close to $700K.

      By the way, this was excluding capital gains, which undoubtedly favors the 1%.

      What happened is austerity.


      1. LMAO…

        There has never been “austerity” and there never will be. There was only a major event around that time, only a major event would have had that impact.

        The gold window was closed by Nixon in 1971 marking the expansion of welfare state/socialism state. The “benefit” is “free” healthcare, food, housing, etc…

        The cost is jobs moving overseas due to never ending imbalances, extinction of the middle class, and an explosion in inequality. Talk about unintended consequences.

        The world is a messed up place. Are you in the 1% or the 99% Rodger?

        1) Nobody sees central banks as being THE problem, while academics conveniently blame the 1% instead of the central banks.
        2) Keynesians/Socialists think more spending is the answer to excessive debt levels.
        3) Monetarists/Socialists think more printing is a good response to too much printing
        4) The 1% like it like it is.
        5) The middle class is too busy to notice the looting


        1. I’m pleased to learn from you that that the “fiscal cliff” and sequestration and the reduced deficit since 2009 not been symptoms of austerity. How droll.

          Pretty soon, we’ll have another federal surplus disaster, and you still will claim we don’t have austerity (because according to you, we “never will” have austerity).

          Closing the gold window has, in theory, made federal deficit spending easier, but what you disparage as the “welfare state” just reveals your abject ignorance and cruelty toward those who need help.

          Let ’em starve, huh? Let ’em live in hovels. Let ’em go uneducated. It’s all their fault for not slaving hard enough. Right? We self-sufficient, John Waynesque heroes don’t need government, do we?.

          1) The problem is the Congress, which is bribed by the 1% via unlimited campaign contributions (thank you right-wing Supreme Court) and promises of lucrative employment later.

          2) We don’t have excessive debt. The misnamed “debt” could be eliminated tomorrow. Merely transfer the dollars in T-security accounts at the FRB, to holders’ checking accounts. Poof. No more “debt.” Your fear of so-called debt is yet another symptom of ignorance about federal financing.

          Only a fool believes the federal government could run short of dollars, and so needs to borrow dollars. And a bigger fool believes the government needs to borrow dollars, while at the same time complaining abouttoo much money “printing.” Don’t you even see the contradiction?

          3) The government does not print dollars. It pays bills by sending instructions to banks. In any event, the nation does not have too many dollars. It has too few dollars, thanks to Tea/Republican Congress austerity.

          4) You almost are right. Actually, the 1% want to widen the Gap between them and the 99%, which the right wing has facilitated.

          5) The middle class is not too busy. That’s a cop out. The middle class has been brainwashed by fools who think federal finances are like personal finances.

          So when Obama tells them “You have to live with your means, so the government should live within its means,” they accept that Big Lie — just as you do.

          You repeatedly have demonstrated abject ignorance about our nation’s Monetary Sovereignty, exacerbated by your determination not to learn. You complain about the 1% and then you complain about the poor.

          So, apparently, you are among the “too-busy-to learn” middle class, though not too busy to write repeatedly about things you don’t know.


          1. What was the national debt or surplus if you prefer, say, back in 1971? What is it now?

            Is that what you call “austerity”? So let me get this straight, the government does exactly what you prescribe for 54 years, the national “surplus” booms in that period and you still have the b*lls to blame “austerity”?

            Are you part of the 1% or the 99% Rodger?


  3. Monto, is this an attempt at a joke, or are you serious?

    You said, ” . . . the national debt or surplus . . . “ and ” . . . the national surplus booms in that period.”

    OMG! You really don’t know the difference between the national debt and a surplus?? And you have the b*lls to pontificate on economics??!! Yikes!

    There have been very few surpluses in U.S. history, the last one being a brief period at the end of the Clinton presidency (It led to a recession as all surpluses do).

    So for you to say that the “national surplus booms in that period” is the height of ignorance.

    I’ll try to teach you something (fearing it’s hopeless): A federal surplus occurs when federal tax collections exceed federal spending.

    When the federal government runs a surplus, the supply of dollars is reduced.

    If you can demonstrate how reducing the dollar supply helps grow an economy, you will have created a revolution in economics, and probably merit the special form of “Nobel” given to economists.

    The federal debt is the total of T-security accounts at the Federal Reserve Bank. You increase the debt when you purchase a T-bill, T-bond or T-note, for which your payment is deposited in your T-security account at the FRB.

    To pay off the so-called “debt,” the government merely debits your T-security account and credits your personal checking account. All federal debt easily could be paid off tomorrow. No new dollars needed.

    The two — surplus and debt — are completely different. A surplus is the opposite of a deficit, not the opposite of a debt.

    By the way, even federal deficit and federal debt are not directly related. It would be possible for the federal government to have trillions of dollars in deficits, while having no “debt” at all (Simply stop selling T-securities).

    It also would be possible to have a debt, while having no deficits (Run surpluses while continuing to sell T-securities).

    I’ve tried to be patient with you, but for weeks, you’ve shown no willingness to learn. Instead, you write sarcastic comments.

    So unless your next comment demonstrates at least a modicum of learning effort, I’ll have to give up on you.



  4. So why does a country devote great efforts to create scarce materials for another country in exchange for something that requires no effort by the other country. The answer appears to be employment. The country with the trade surplus will need more labor. But as has been discussed in this blog, employment should not be goal of society — receiving resources shhould be. So for whatever political reasons, China wants to maximize employment of its citizens — at the expense of its citizens.

    When a baseball team trades its best player for a lesser player, the team giving up the lesser player cannot turn down the trade. Similarly, the US cannot refuse its trade deficit.


  5. Sorry I’m a bit late seeing this. Let me ask why does the government need to sell bonds in the first place? We know it has creditors and it can pay them directly without needing to raise funds via bonds. It never has to borrow, in dollars.
    I understood the FRB has no money – apart from enough for daily accounting. All it’s profits, say from minting notes and coins etc are sent to Treasury.
    Does that mean all the funds and deficit cyphers are property of the commercial banks? I.E “client money rules” applies to the Fed while it does not apply to commercial banks? Is that what is meant by it’s being a clearing house?

    I understand the Fed has to sell bonds for purposes of “draining excess reserves”. Is that excess coming from the private sector only?
    Any other reason?

    I’m trying to get a rounded picture of what goes on in the Fed.

    Also when tax payments are deposited in an account. Which account is used?
    For tax money to be deleted does it get offset by some “money creation account” I.e what is the mechanism for balancing money creation and money destruction?


    1. By law, T-securities must be issued as an “offset” to deficits. The law was written when the U.S. was not Monetarily Sovereign. Today, T-securities are not necessary for any funding purpose.

      Some (most? all?) of our leaders know this, but apparently there is tacit agreement that the public cannot handle the knowledge (because if the people knew, they would demand all sorts of freebies from the government, and that would close the Gap between the rich and the rest.)

      I didn’t understand your 2nd paragraph.

      I don’t know why excess reserves must be “drained,” but that is a whole interest-rate subject unto itself.

      The formal workings of the government’s black box accounting system are not the issue. The fact is that tax dollars have no funding function. Even if all federal tax collections fell to $0, the federal government could continue paying its bills, forever.

      So, as a shorthand, we say tax dollars are “destroyed,” but there is no formal “destruction” account at the Treasury.

      This is the key fact you should keep in mind: Credits to federal government accounts are not part of the money supply. In short, the federal government has no money.

      If you send the federal government a $1000 check to pay your taxes, $1000 disappears from your checking account and from the money supply, never to be seen again.

      That is the destruction.

      The Treasury has balance sheet accounts. The Treasury also has sheets of printed dollars, plus many printing presses. But it has no money.

      It pays its bills by sending instructions to creditors’ banks, instructing the banks to create dollars by increasing the balances in creditors’ checking accounts.

      That is why worries about federal debt are hilarious. The federal government creates dollars ad hoc by paying bills.

      One way to think of the process is to visualize the federal government as a wizard.

      If you ask the federal government for the $1000 it owes you, the “wizard” waves his sovereign wand as says, “Shazam! You now have an additional $1000 in your checking account.”

      That is what being Monetarily Sovereign means. The U.S. government is sovereign over the dollar. It can do anything it wishes to the dollar.

      And that is why sending money to the wizard is useless. The wizard has no need for your dollars.


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