…instead of the 28 percent depreciation [of the U.S. dollar] needed to induce a 1 percentage point improvement in the trade balance to GDP ratio, only about a 15 percent depreciation is required once on takes into account vertical specialization in the manner the WEO authors do.
If this is right, paying off America’s ongoing trade deficit won’t be nearly as hard as we used to think. Here is more.
This is slightly unrelated, but… Don Boudreaux and Russ Roberts tell me the trade deficit is a complete non-issue. I am ignorant on this issue, except for what the people I like tell me. If you disagree, could you tell me the other side of the argument sometime?
How do you pay off what you do not owe?
Lord Duppy — put it in personal terms. A trade deficit means you are consuming more then you produce and borrowing to finance the difference.
Yes, sometimes borrowing is a good policy. For example to buy a home or finance the purchase of a durable good like a car that you will pay off faster then it depreciates.
But is continuing to borrow ever larger amounts, including borrowing to pay the interest payments on your previous debt with no good prospects of ever being able to get out from under the debt load a good policy? Do you think their should ever be a limit on the amount of credit card debt you run up?
If you think so then you should disagree with Don Boudreaux and Russ Roberts
Because what we are doing with our ever expanding trade deficit is maxing out our national credit card debt.
Spencer’s characterization is not really that true. There may be elements of the debt argument that can be traced to the trade deficit but they are not PERFECTLY correlated. The U.S is a very very wealthy nation. Our trade deficit is a sign of our nations wealth. We as Americans buy lots of goods and services from both Americans and foreigners. Just because we have a heavy trade deficit does not mean that it is absolutely true that we are a nation of debters. The trade deficit implies lots of different things about the U.S, and yes a bit of the story is the personal debt issue.However, it is not the entire story as Spencer implies.
Lord Duppy is right to request Tyler a clarification of his views. I used to teach International Monetary Economics (or Balance-of-payments theory) in the 1970s and I had to spend time explaining why Spencer’s analogy is wrong as Eddie and John Pertz explain. I strongly recommend to read what Boudreaux and Roberts have written repeteadly in their blog about trade deficits to understand why Tyler’s comment makes no sense.
But all the national statistic shows is a conglomeration of personal actions. There is no “national” debt other than the federal budget deficit.
“If masses of people default, someone will have to pay for that. Who do you suppose that “someone” might be?”
The lender?
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