First of all, most of the wealth that is created here is sent overseas. We actually do more trade with Canada and they and most other countries (except Japan and Saudi Arabia) have been more than fair to us.
Let's look into this.
I have been using banking terms to describe the adverse effects of trade because there's no other term to describe the money supply made available or lost through the current account deficit. The banks create money, not wealth. Refer to the Federal Reserve. When our government prints, it costs us real value in the form of inflation because each dollar is worth less. INFLATION DOES NOT CREATE WEALTH.
The Money Supply (M0) represents wealth. There are only two major places this wealth can come from.
One is real value which is gained through labor and wealth creation. Some argue that this value should be secured with gold. (see the End the Fed movement)
The second comes from the banks in the form of credit, which accrues interest payables. Since the Reagan era, credit has been a used permanently as a source of "wealth". Since Deregulation, the "wealth" is supported through a fraudulent derivative market.
Common sense says that we prefer to spend real value before credit because we don't want to pay interest on borrowed money if we don't have to.
What the trade deficit does is reduce the real value in our money supply.
As of right now that trade deficit floats between $600-$700 billion dollars.
I want to say the multiplier effect (a term affiliated with banks not trade or wealth creation releasing money)---that missing money has the same effect, but the velocity of money probably more accurate to describe the $600-$700 billion dollars. in real value that is missing from our money supply.
Let's say that we had $700 billion dollars more in America's money supply, that same $700 billion will be circulated (change hands) a few times within the course of the year. This could easily add trillions to the GDP & GNP. Which would pay for a few mortgages, student loans, credit card debts, employ a few more people, start ups, opportunity costs, medical bills, etc. As of now that missing wealth was substituted by credit; which charges interest.
This is a lot of non-interest accruing tax revenue.
Government likes it when bureaucracies gouge Americans because it increases their tax revenue.
WHAT OBAMA NEEDS TO DO
The ArmChair Economist is strongly suggesting that Obama address the WTO on trade relations between the U.S. and China.
Obama needs to demand that the WTO stop defending China's trade war against the U.S. That's their job. They're a very corrupt organization, if they don't do their job there is no need for America to support them. If they're going to be preachy about protectionism, they might want to stop blaming the U.S. because we have been free and more than fair to China.
It is utterly absurd to expect the 300 million middle class Americans to sponsor the economic growth for 1.7 billion people in China. Talk to our tycoons, they don't participate in the this Keynesian economics trickle down stimulus game with us anyways.
The Conservatives have tried to play down this issue by saying that the trade deficit isn't a big deal (as long as we get to use credit that we're paying interest on). And they have muffled out the noise about a trade war.
Look, when China imposes restrictions, fees and tariffs against the U.S. imports; they are committing a TRADE WAR against the U.S. It is what it is. My reason for writing this blog in the 1st place for anyone who is kind enough to read (thank you) is because the media is full of krap and nobody should be obligated to buy that garbage.
The democrats aren't even acknowleding this as a concern. Our republicans are out of touch, the democrats are in outerspace.
WITHOUT REAL WEALTH IN OUR MONEY SUPPLY, THERE IS NOTHING TO BACK CREDIT! Which is why our credit default market collapsed to begin with!
The only import that they're buying is debt (and a few small sectors). And unfortunately our Congress is spending so much that we need to sell them more U.S. Treasuries. Again, China buys US treasuries to keep the Yuan valued lower than the USD.
Of course the artificially cheaply valued Yuan is China's main competative advantage in world trade.
How Can China Set Its Exchange Rate Lower than the Dollar?:
China sets the value of its currency, the yuan, to always equal a set amount of a basket of currencies which includes the dollar. When the dollar loses value, China buys dollars through U.S. Treasuries to support it. In this way, the yuan's value is always within its targeted range. As long as the yuan's value is lower than the dollar, China's goods are cheaper in comparison.
How Does the U.S. Trade Deficit with China Affect the U.S. Economy?:
As China buys U.S. Treasuries to support the value of the dollar, and keep its exports cheap, it becomes a large lender to the U.S. Government. At the end of 2007, China owned $477 billion in U.S. Treasuries, 20% of the total $2.35 trillion outstanding. This makes it the second largest owner after Japan. Many are concerned that it gives China political leverage over U.S. fiscal policy, since it could theoretically call in its loan. (Source: U.S. Treasury, Major Foreign Holdings of Treasury Securities)
By buying Treasuries, China has helped keep U.S. interest rates low. Until the Subprime Mortgage Crisis, this helped fuel the U.S. housing boom. If China were to stop buying Treasuries, interest rates would rise, delaying any recovery.
China is, in effect, loaning the U.S. money to buy its products. If China called in its loan, the U.S. economy would slow further, and consumers would not be able to afford Chinese exports. For this reason, China will keep the situation going as long as possible. There is no reason for China to stop buying Treasuries.
However, the U.S. trade deficit with China means that U.S. companies that can't compete with cheap Chinese goods must either lower their costs or go out of business. To lower their costs, many companies have started outsourcing to India and China, causing higher unemployment in the U.S. Other industries have simply dried up. U.S. manufacturing, as measured by the number of jobs, has declined 21% since 1998. As these industries decline, so does U.S. competitiveness in the global marketplace. (Source: BLS, Employees by Industry)
The price of oil went up because the sale of cars increase dramatically recently in China. There are a billion people in China. They're going to drive up demand no matter how much they attempt to conserve.
The HACK Katie Couric totally lied this week by saying that the price of oil this week went up because the economy was improving. Nope! Oil went up because China is now driving. Although I highly recommend staying away from autoinsurance in the Far East.
Look, oil is going up and increasing our trade deficit. Our dollar is going down. The federal deficit is skyhigh. The tax revenue is lower than normal. We haven't created more wealth than we spent.
May I introduce Congress, the Federal Reserve and our POTUS to something called a "BreakEven Point"?
The only "economic recovery" we will see is a resurgence of the sketchy derivative market. Our government committed generational theft to create a dead cat bounce in the real estate market. I'm not a "doomsdayer", we need CONCRETE EVIDENCE of a recovery in the economy. And Americans should not let off the pressure on our government until we see it.
There is no recovery until the deficits are fixed.