Deficits in trade, budgets, and morals

Ok, perhaps the title goes too far, but Sean Corrigan's latest article at is a great explanation of the relationship between the current "twin deficits" of the Federal budget and the US balance of trade. Expanding on a point I've touched on in the past, Sean explains that the money to cover the borrowing has to come from somewhere, and since the US economy's savings aren't high enough to cover the government's spending, foreign investors and foreign central banks are, and hence the "trade" deficit[1].

His point also alludes to the mental and moral deficits that exist in (states)men who can't see the train wreck coming and those who do but don't care or don't want to believe. Such deficits are, unfortunately, a broadly bipartisan affair (just go see Kevin Drum whenever the subject of Social Security comes up, if you wish to see a textbook case of denial and delusional thinking).

fn1. Money coming into the US is counted as an import, so to speak. We import money and don't export a good, but rather a promise to pay back the money plus extra. If the US were a creditor nation, and loaning money to the rest of the world or was a net investor in the rest of the world, the outflow of money would count as exports. Welcome to the odd and seemingly counterintuitive world of accounting... :beatnik:

Share this

Hmm. This is the first time

Hmm. This is the first time I've tried using the "pages" tag to hide my footnotes, and I'm not sure if it's the best aesthetically. At the moment I think it has the edge on the "more" tag, but that position is shaky...

As usual, they get the

As usual, they get the causation reversed. The Trade deficit is not caused by the U.S. "living beyond it's means" by "borrowing from foreigners" - it is caused by the desire of foreigners to net save dollar-denomitated assets.

Here's a good intro:

You should read some of the other stuff on Mosler's site, too. You won't beleive them, of course, but it might give you something to think about.