The Trade Deficit & Government Debt

[Travis Retriever]

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Contrary to Shane's video on them, a trade deficit, according to my textbook, is just when we import more than we export; with the value of the goods from both countries being measured using the same currency (usually USD's).
So why does a trade deficit count as "debt" when we pay money (pay using the product of our labor) for imports?
I mean, would it be any different if I just stole them from the store?  If so, let me know. 


As far as I'm concerned with the way things are going with the unfunded liabilities and debt; it looks like the only way we're going ot be able to not go bankrupt as a country (thereby collapsing like Rome) is to just nullify the unfunded liabilities for SS, Medicare, Medicaid and Federal Government Welfare along with the entire programs and forgive the debt the government owes itself (about half of that $11 trillion) and reduce spending to little if anything and lower taxes accordingly.
I don't see how we can pay this off (hint: we can't).
There will be people screwed over, but there won't be as many (if any) in the long run via the Broken Window Fallacy.

[Travis Retriever]

Trade Deficit:  "The amount by which a nation's imports of goods (or goods and services) exceed its exports of goods (or goods and services)."  - My economics textbook.

Is my last comment just ignorant? 

[MrBogosity]

The trade deficit isn't something you "pay off." It's not really a deficit at all. The imbalance of imports/exports is compensated by foreign investment.

[Travis Retriever]

It sounds like Schiff is using it as an example of the nation's lack of production stemming from our lack of good investment and differed consumption resulting from our insane monetary policy.

[Travis Retriever]

This comment specifically:  "I didn't get into WHAT the debt was for. In my example, Hans just invested in American dollars. Maybe he got a negotiable bonds account which went to businesses to expand, build new factories, increase productivity. This is a GOOD thing for the economy.

Where it gets bad, as I said in the comments, is like our government running its huge debt with China in order to finance their war. So yes, you have to look at what the debt's FOR to see if it's good or bad."

I don't know China's intentions and motivations; I'm neither an expert nor psychic. I can tell you what they are economically incentivized to do:

If you recall my video on the trade deficit, you'll know that our government's policy is to devalue the dollar on the foreign market to make foreign goods more expensive. China doesn't want that to happen, for obvious reasons. So their response is to create yuan out of thin air and use them to purchase dollars on the exchange market, thus increasing the dollar's value and protecting their trade with the US.

Is the bolded/italiced/underlined part where we get our debt from China?
I'm just asking how our government gets into debt with foreign governments (e.g. China).
If it isn't the trade deficit, then what is it that causes it? O.o

Their incentive would then be to sit on the dollars, keeping them in reserve. Buying bonds from the Treasury--or doing anything else with them--would invalidate the purpose they had in purchasing the dollars in the first place.

So they devalue their currency in order to keep up trade with the USA (exporting inflation).

[MrBogosity]

Is the bolded/italiced/underlined part where we get our debt from China?

No; those are two different things. China, after buying the dollars on the market, used them to purchase US bonds. That's not necessary for the effect I'm talking about with the exchange rates. But it is a good way for them to earn interest (as opposed to stuffing the dollars in mattresses or something).

[MrBogosity]

Their incentive would then be to sit on the dollars, keeping them in reserve. Buying bonds from the Treasury--or doing anything else with them--would invalidate the purpose they had in purchasing the dollars in the first place.

Now that I think about it, I take this part back: Buying US bonds would NOT invalidate that purpose. The exchange would have been made on the yuan-dollar market and had the effect they wanted.

[Travis Retriever]

That might explain how we get into debt with China.
Because of our crappy monetary policy, we don't have enough (good) investment, and therefore not enough production.  This results in a trade deficit with China.
Our government tries to devalue the dollar on the foreign market by printing more dollars.  This is to make foreign goods more expensive, in order to reduce the trade deficit (deterring people from buying from China).
The Chinese Government doesn't want this, so they print up more yuan out of thin air, and use it to purchase dollars (devaluing their own currency relative to the dollar) in order to protect their trade with the US.
The then use use the dollars bought to buy bonds from the US government which our government uses to finance the war(s); which we can't very easily pay back, because the money is sent down the government toilet.
This is where our debt from China comes from and where Peter Schiff's concern comes from.
Sounds like we need to fix our shitty monetary policy...like...yesteryear.