Timeline for Understanding the effects of government deficit on international trade
Current License: CC BY-SA 3.0
19 events
| when toggle format | what | by | license | comment | |
|---|---|---|---|---|---|
| May 5, 2017 at 19:11 | comment | added | Hot Licks | I'm afraid that you're the one who is arguing without explaining things. | |
| May 5, 2017 at 19:06 | comment | added | TheSaint321 | At this point I feel that you are just being argumentative and hope that you educate yourself further on this topic. I really just can't explain why you're wrong any further. | |
| May 5, 2017 at 19:04 | comment | added | Hot Licks | "Empirically false"? Have you tried it? | |
| May 5, 2017 at 19:03 | comment | added | TheSaint321 | What you are saying is that if a foreign individual spends 1 dollar on U.S debt that is 1 dollar less spent on U.S exports. This is empirically false. Maybe I'm misunderstanding but quite frankly the explanation of your argument is quite confusing. Maybe if you went through and rephrased everything to be more comprehensive I could understand. | |
| May 5, 2017 at 18:59 | comment | added | Hot Licks | I'm not arguing about currency conversion (though it's certainly a relevant topic). I'm effectively saying that if money is spent buying US debt it eventually affects conversion rates such that the money is taken away from trade. When I very crudely worked my way through the effects of conversion it appeared that it was a "wash", other than to introduce "noise" and time delay, so it seems reasonable to "ignore" it. | |
| May 5, 2017 at 18:53 | comment | added | TheSaint321 | Ahh I think I understand better what you are saying. The argument is still wrong but makes more sense. You are assuming that whatever money is now caught up in US debt would have otherwise been spent in U.S trade. This is a faulty assumption. Currency can be converted and it is entirely possible to buy U.S products using foreign currency. Using the Forex market its quite easy to buy goods internationally using any currency you want. The argument that there is a 1:1 correlation between foreign held USD and U.S exports is empirically false. | |
| May 5, 2017 at 18:52 | comment | added | Hot Licks | "This is the first time you've mentioned trade?" You apparently didn't read my question: thus removing the ability of that much US currency to purchase goods and services from the US (or benefiting from that much US currency being paid out of the US to buy foreign goods and services). | |
| May 5, 2017 at 18:49 | comment | added | Hot Licks | You're an overseas loan shark with a stack of US currency. You loan the Treasury \$1M. But then you decide that you'd like to buy \$1M of fancy Vermont marble to finish off your palace. Oops! You spent all your dollars on the T-bills, and all you have left is rubles, so you buy Russian marble instead. Yeah, that's a little contrived (you could always trade rubles for dollars, at a cost), but that's how it works. | |
| May 5, 2017 at 18:47 | comment | added | TheSaint321 | At this point I'm getting the feeling that you don't actually have a question and just want to trash the tax cuts. The question, as I read it was whether or not your argument about the tax cuts is correct or not. The answer is No, it is not because your argument stemmed from a fundamental misunderstanding of how foreign debt works. Nowhere in your question or in my answer was anything said about trade and I'm confused how it got brought up. | |
| May 5, 2017 at 18:44 | comment | added | TheSaint321 | Like I originally said. I don't support the Trump tax cuts and those are valid criticisms of the tax cuts. I'm just explaining the rationale behind them and how given a certain set of assumptions (which I personally don't hold to be true) they make sense. This is the first time you've mentioned trade? Foreign owned debt and trade are completely unrelated. If you have a question related to foreign debt and international trade I'd be happy to answer it if you post another question. | |
| May 5, 2017 at 18:42 | comment | added | Hot Licks | When Treasury sells T-bill money flows into the US, but money isn't trade. That's the important point to understand here. | |
| May 5, 2017 at 18:40 | comment | added | Hot Licks | Re the Laffer curve and associated concepts, that only works if the tax cuts are recycled into the economy, vs going to wealth-building for individuals, and the effect (to the extent that it exists at all) is mainly seen when the economy is in recession. But tax rates (especially for business and investment) are already at historic lows, and tax laws already strongly favor true investment, so it's hard to see how the proposed cuts can provide much in the way of "stimulus". (But as I said earlier, I'm not here to debate the merits of "stimulus", but to understand the effect of debt on trade.) | |
| May 5, 2017 at 18:35 | comment | added | TheSaint321 | Think of it like this: If you take out a loan from the bank for 1000 dollars you haven't lost money. You've gained 1000 dollars and now have 1000 dollars in debt. You can now make your life better off with that 1000 dollars. In no scenario in the short run does the possession of 1000 new dollars hurt you. Only in the long run when the debt collectors come knocking does the debt impact you negatively, ideally in the meantime you've invested that 1000 dollars and in doing so can repay it and made a healthy profit. This is the equivalence of foreign debt. | |
| May 5, 2017 at 18:33 | comment | added | TheSaint321 | The treasury SELLS T-Bills for real money. Money is flowing INTO the economy not out of the economy. The T-Bills are then later repaid for real money. | |
| May 5, 2017 at 18:31 | comment | added | Hot Licks | To buy T-bills you need money. I don't think the Treasury is going to give them away. Real money (to the extent that any money in the banking sector is "real") changes hands. Yes, the money may eventually be repaid, and "real" money may then flow the other direction. But that won't happen for decades, at least. The money flows out much more quickly (on the safe assumption that Trump does no better than any Republican since Reagan at balancing the budget). At most I can see an argument that "float" will somewhat offset the effect. | |
| May 5, 2017 at 18:12 | comment | added | TheSaint321 | Your point is valid in an economy with a balanced budget where 1 dollar lost in tax revenue is 1 dollar lost in government spending. That isn't the case here, and if that was the case then the effect would depend on where we stand in the Laffer Curve as I mentioned. If the tax break is funded through debt then it will only have positive impacts in the short run and potentially negative impacts in the medium run. There is no scenario where a tax cut without a cut in government spending hurts the economy in the short run. | |
| May 5, 2017 at 18:09 | comment | added | TheSaint321 | Debt =/= Money. Debt is simply the promise to repay money in the future. In the short term we haven't lost any money and only lose money years from now when we've repayed the debt. Assuming that 100% of the tax cut is payed for in debt (it's not) then the money only flows out of the economy in the future. Trump is betting that the tax cut will benefit the economy by more than the 5 trillion before the money has to be repayed. | |
| May 5, 2017 at 17:58 | comment | added | Hot Licks | You completely miss my point. The government borrows money, and about a third of that debt is sold to overseas lenders. The money the overseas lenders pay for the debt is money that therefore cannot be used to buy US goods and services in international trade. If Trump borrows \$1.7B from overseas sources that's \$1.7B that cannot be spent for goods and services. It makes no difference what the interest rate is, and this effect is present regardless of any supposed "stimulus" due to the tax cut. In fact, it's the one effect of his tax cut that can be predicted with reasonable certainty. | |
| May 5, 2017 at 16:12 | history | answered | TheSaint321 | CC BY-SA 3.0 |