That horrible, terrible, frightening trade deficit

It takes only two things to keep people in chains:Related image

The ignorance of the oppressed
And the treachery of their leaders


Ooooh, that horrible, terrible, frightening monster trade deficit; it scares everyone, especially our President.Image result for scary monster

Here are excerpts from a recent article in Forbes Magazine:

Total debt for the five largest U.S. banks have grown by 4.3% over the last twelve months – above the industry-wide growth figure of under 4%.

This is a large increase by these banking giants, given their massive debt base which averaged more than $5.3 trillion in Q3 2017.

This represents a share of more than 40% of the $13.2 trillion U.S. debt market, and this figure is likely to trend even higher.

Sounds frightening, doesn’t it? Our largest banks have gone into debt by an additional 4.3%. Time to pull your money out?

Well, I didn’t lie, but I misled. The actual article read:

Total deposits for the five largest U.S. banks have grown by 4.3% over the last twelve months – above the industry-wide growth figure of under 4%.

This is a commendable feat by these banking giants, given their massive deposit base which averaged more than $5.3 trillion in Q3 2017.

This represents a share of more than 40% of the $13.2 trillion U.S. deposit market, and this figure is likely to trend even higher as the largest banks continue to outperform the overall industry.

In the banking world, deposits are bank debt. And though you never hear any bank boasting about the size of its debt, banks often boast about the size of their deposits.

I told you this little story to demonstrate how deceptive the word “debt” can be, depending on circumstances.

Well, there is another word that can be equally deceptive and that is the word “deficit,” especially when used in the phrase “trade deficit.”

U.S. trade deficit falls in April, but still up for year
The U.S. trade deficit with China grew 8.1 percent in April, though it fell slightly overall. (Julie Jacobson/AP ) By Paul Wiseman Associated Press

WASHINGTON — Record exports shaved the U.S. trade deficit in April for the second straight month. But so far this year, the deficit is up 11.5 percent from a year ago despite President Donald Trump’s vow to close the gap through new tariffs on imports and renegotiated trade deals.

The president has proposed tariffs on up to $150 billion in Chinese imports. The Chinese have targeted $50 billion in U.S. products in retaliation.

Talks to head off a trade war between the world’s two largest economies have so far failed to produce a resolution even though China has offered to step up purchases of U.S. farm and energy products.

Trump is also trying to renegotiate the North American Free Trade Agreement with Canada and Mexico. The administration is also taxing imports of steel and aluminum.

The president views trade deficits as a sign of economic weakness that can be brought down by more aggressive trade policies.

What exactly is a trade “deficit” and why does President Trump worry about it?

You should know the answer. Every time you go to your local store, or buy something online, you run a “trade deficit,” which is nothing more than buying more than you sell.

Running a trade deficit is no problem for you, so long as you have sufficient income to pay for what you buy.

And running a trade deficit is no problem for the U.S. Because it is Monetarily Sovereign, it has the unlimited ability to pay for goods and services. The U.S. government never can run short of dollars.

Blue line is Gross Domestic Product. Red line is the amount of the trade deficit. Not only is the trade deficit a tiny fraction of GDP, but we have one almost every year, with no measurable negative effect on GDP growth.

Most economists say trade deficits are caused by bigger economic forces, mainly the fact that the United States consistently spends more than it produces.

The trade gap has continued to rise since Trump entered the White House partly because the U.S. economy is strong and American consumers have an appetite for imported products and the confidence and financial wherewithal to buy them.

The whole concept of a trade deficit is silly at best and deceptive in reality:

If you and another person exchanged items of equal value, which of you has run a trade “deficit”? Or said another way: If you give someone a dollar, and he gives you something worth a dollar, which of you has run a deficit?

Take it a step further: Imagine you own a machine that can print infinite dollars and you grab a big boxful of those dollars and exchange them with a foreigner for a car.

The foreigner gives you a car — something that cost him time, labor, and valuable materials to produce — and you give the foreigner some dollars, of which you have an infinite supply and which cost you nothing to produce.

Who received the better deal, you or the foreigner? Would you look up that exchange as a “deficit”?

I have just described the U.S. trade “deficit.” Dollars are free to the U.S. government, and in exchange for those free dollars, we receive valuable assets. Yet Trump and many others fret about the U.S. trade “deficits.”

If Illinois runs a trade deficit, that might worrisome. Illinois does not own that money-printing machine. It cannot create infinite income the way the federal government can. It must rely on other income sources, notably taxes. The same is true for Cook County and for Chicago.

And you, too. You must have sufficient income, either from earnings, gifts, or borrowing, to pay for goods and services. But the federal government needs none of these.

Being Monetarily Sovereign it merely creates dollars by pressing computer keys.

Ben Bernanke: “The U.S. government has a technology, called a printing press (or, today, its electronic equivalent), that allows it to produce as many U.S. dollars as it wishes at essentially no cost.

St. Louis Federal Reserve: “As the sole manufacturer of dollars, whose debt is denominated in dollars, the U.S. government can never become insolvent, i.e., unable to pay its bills.”

So tell me, again, Mr. President, since “trade deficit” means the U.S. exchanges dollars it produces at no cost, for valuable goods and services, why are you concerned? Isn’t a trade deficit the greatest benefit imaginable?

Getting much more value than we give — that’s not a deficit. If anything, it’s a surplus.

What traditionally has been misnamed a “trade deficit,” more properly should be called a “trade surplus,” when referring to the Monetarily Sovereign U.S. government.

Then, everyone could stop wringing their hands in worry.

“Debt” and “deficit” are the most misused and misunderstood words in all of economics, when applied to our Monetarily Sovereign government.

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


The single most important problems in economics involve the excessive income/wealth/power Gaps between the have-mores and the have-less.

Wide Gaps negatively affect poverty, health and longevity, education, housing, law and crime, war, leadership, ownership, bigotry, supply and demand, taxation, GDP, international relations, scientific advancement, the environment, human motivation and well-being, and virtually every other issue in economics.

Implementation of The Ten Steps To Prosperity can narrow the Gaps:

Ten Steps To Prosperity:
1. ELIMINATE FICA (Ten Reasons to Eliminate FICA )
Although the article lists 10 reasons to eliminate FICA, there are two fundamental reasons:
*FICA is the most regressive tax in American history, widening the Gap by punishing the low and middle-income groups, while leaving the rich untouched, and
*The federal government, being Monetarily Sovereign, neither needs nor uses FICA to support Social Security and Medicare.
This article addresses the questions:
*Does the economy benefit when the rich can afford better health care than can the rest of Americans?
*Aside from improved health care, what are the other economic effects of “Medicare for everyone?”
*How much would it cost taxpayers?
*Who opposes it?”
3. PROVIDE A MONTHLY ECONOMIC BONUS TO EVERY MAN, WOMAN AND CHILD IN AMERICA (similar to Social Security for All) (The JG (Jobs Guarantee) vs the GI (Guaranteed Income) vs the EB (Guaranteed Income)) Or institute a reverse income tax.
This article is the fifth in a series about direct financial assistance to Americans:

Why Modern Monetary Theory’s Employer of Last Resort is a bad idea. Sunday, Jan 1 2012
MMT’s Job Guarantee (JG) — “Another crazy, rightwing, Austrian nutjob?” Thursday, Jan 12 2012
Why Modern Monetary Theory’s Jobs Guarantee is like the EU’s euro: A beloved solution to the wrong problem. Tuesday, May 29 2012
“You can’t fire me. I’m on JG” Saturday, Jun 2 2012

Economic growth should include the “bottom” 99.9%, not just the .1%, the only question being, how best to accomplish that. Modern Monetary Theory (MMT) favors giving everyone a job. Monetary Sovereignty (MS) favors giving everyone money. The five articles describe the pros and cons of each approach.
4. FREE EDUCATION (INCLUDING POST-GRAD) FOR EVERYONE Five reasons why we should eliminate school loans
Monetarily non-sovereign State and local governments, despite their limited finances, support grades K-12. That level of education may have been sufficient for a largely agrarian economy, but not for our currently more technical economy that demands greater numbers of highly educated workers.
Because state and local funding is so limited, grades K-12 receive short shrift, especially those schools whose populations come from the lowest economic groups. And college is too costly for most families.
An educated populace benefits a nation, and benefitting the nation is the purpose of the federal government, which has the unlimited ability to pay for K-16 and beyond.
Even were schooling to be completely free, many young people cannot attend, because they and their families cannot afford to support non-workers. In a foundering boat, everyone needs to bail, and no one can take time off for study.
If a young person’s “job” is to learn and be productive, he/she should be paid to do that job, especially since that job is one of America’s most important.
Businesses are dollar-transferring machines. They transfer dollars from customers to employees, suppliers, shareholders and the federal government (the later having no use for those dollars). Any tax on businesses reduces the amount going to employees, suppliers and shareholders, which diminishes the economy. Ultimately, all business taxes reduce your personal income.
7. INCREASE THE STANDARD INCOME TAX DEDUCTION, ANNUALLY. (Refer to this.) Federal taxes punish taxpayers and harm the economy. The federal government has no need for those punishing and harmful tax dollars. There are several ways to reduce taxes, and we should evaluate and choose the most progressive approaches.
Cutting FICA and business taxes would be a good early step, as both dramatically affect the 99%. Annual increases in the standard income tax deduction, and a reverse income tax also would provide benefits from the bottom up. Both would narrow the Gap.
There was a time when I argued against increasing anyone’s federal taxes. After all, the federal government has no need for tax dollars, and all taxes reduce Gross Domestic Product, thereby negatively affecting the entire economy, including the 99.9%.
But I have come to realize that narrowing the Gap requires trimming the top. It simply would not be possible to provide the 99.9% with enough benefits to narrow the Gap in any meaningful way. Bill Gates reportedly owns $70 billion. To get to that level, he must have been earning $10 billion a year. Pick any acceptable Gap (1000 to 1?), and the lowest paid American would have to receive $10 million a year. Unreasonable.
9. FEDERAL OWNERSHIP OF ALL BANKS (Click The end of private banking and How should America decide “who-gets-money”?)
Banks have created all the dollars that exist. Even dollars created at the direction of the federal government, actually come into being when banks increase the numbers in checking accounts. This gives the banks enormous financial power, and as we all know, power corrupts — especially when multiplied by a profit motive.
Although the federal government also is powerful and corrupted, it does not suffer from a profit motive, the world’s most corrupting influence.
10. INCREASE FEDERAL SPENDING ON THE MYRIAD INITIATIVES THAT BENEFIT AMERICA’S 99.9% (Federal agencies)Browse the agencies. See how many agencies benefit the lower- and middle-income/wealth/ power groups, by adding dollars to the economy and/or by actions more beneficial to the 99.9% than to the .1%.
Save this reference as your primer to current economics. Sadly, much of the material is not being taught in American schools, which is all the more reason for you to use it.

The Ten Steps will grow the economy and narrow the income/wealth/power Gap between the rich and you.


7 thoughts on “That horrible, terrible, frightening trade deficit

  1. MMT/Ms proponents are constantly having the frame the debate.The Mainstream is misleading with their use of economic terms that are counterintuitive, even at the bookkeeping level, to anyone not working in the sphere. So we have the Household Analogy applied to MS governments, completely untrue. Budget surpluses, and deficits’ are routinely misunderstood to make the punters angry or insecure and keep them voting against their own best interests. The MSM is totally committed to the lies.
    The export one is just another example.


    1. “So we have the Household Analogy applied to MS governments, completely untrue.”

      Exactly correct. The public has no idea about the differences between federal (Monetarily Sovereign) financing and personal financing.


  2. The U.S. is in a unique position in that our currency is by far the world’s largest reserve currency, which allows us to buy virtually anything in the world using our unlimited supply of fiat currency (including all of our many foreign military adventures). For the U.S., trade deficits are an economic bonus, as RMM has clearly stated.

    Where the U.S. has failed, however, is in allowing free trade agreements and large trade deficits to result in massive off-shoring of high paying jobs without a corresponding policy or fiscal response to mitigate that impact. It’s hard for the guy or gal that lost a $25/hour factory job and is now working for $10/ hour at Walmart to see trade deficits as anything but a big negative.

    This seems to be nothing more than a cynical ploy by Trump to shore up his base by using trade deficits to prey upon their economic anxieties, without offering any real solutions.

    As Shakespeare (Macbeth) so eloquently said, “It is a tale told by an idiot, full of sound and fury, signifying nothing.”


    1. Agree, very good aritcle. I follow Bill’s blog posts over at NEP regularly. Always enlightening and spot on in his analysis.


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