Andylusion
Platinum Member
Nevertheless, to claim a trade deficit must be covered by debt, is not logical. If I'm in China, and I sell you a TV, and you buy the TV, and you give me $200 (that you didn't borrow), and I give you the TV.... where is this debt? There is no debt.
Lol!! No , that's not how it works!!
From the US point of view it seems logical because it is the reserve currency.
Take a step back :
First :
total production = local demand + exports. (10 + 1)
total consumption = local demand + imports (10 + 2)
This is a simplification because you could actually have stock build up, which leads to other problems, so for this example I'll disregard it. In the above example you produced 11, but you consumed 12. This can't be right. The only way to offset the difference is through credit.
That's way too simplified to be of any value in this discussion. What about services, and investment, and non-tangible value?
But even beyond that, logic itself says this isn't true. Right now the US government ran a $425 Billion deficit, and Medicare and Medicaid is $600 billion. If we cut Medicare and Medicaid, the US government would be running a surplus of $175 Billion dollars.
Now, are you suggesting to me, that if we cut the US budget by $600 billion, and had a $175 Billion dollar surplus, that somehow.... we would still be going into debt because of the trade deficit?
How would you say this works? How would a budget surplus, still end up creating debt, simply because of the trade deficit?