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Could you expand on this?

Sure!

Assuming a neutral currant account (exports = imports), the only way for the government to run a deficit is via foreign investment and internal investment. However this is not important, just the frame work.

Regardless of the state payments, Current account (CA) + Capital financial account (KFA) = zero; CA + KFA = 0.

The current account is the amount of money flowing into the economy (net exports, net income from abroad, and net unilateral transfers such as payments made abroad; and the capital account is the net flow of "unilateral transfers of assets into the country" such as when a foreigner buys a piece of property or Treasury Bills.

In our situation, we have a negative current account which is exactly (in regards to absolute value) equal to that of the positive capital account. Because we purchase more (with dollars) from abroad than we export, many of our trading partners are left holding dollars. What do they do with these dollars? They purchase dollar denominated assets such as stocks, t-bills, property etc...

Which is why we are able to run unimaginable deficits.

Note: this is a watered down version:mrgreen:
 
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Sure!

Assuming a neutral currant account (exports = imports), the only way for the government to run a deficit is via foreign investment and internal investment. However this is not important, just the frame work.

Regardless of the state payments, Current account (CA) + Capital financial account (KFA) = zero; CA + KFA = 0.

The current account is the amount of money flowing into the economy (net exports, net income from abroad, and net unilateral transfers such as payments made abroad; and the capital account is the net flow of "unilateral transfers of assets into the country" such as when a foreigner buys a piece of property or Treasury Bills.

In our situation, we have a negative current account which is exactly (in regards to absolute value) to that of the positive capital account. Because we purchase more (with dollars) from abroad than we export, many of our trading partners are left holding dollars. What do they do with these dollars? They purchase dollar denominated assets such as stocks, t-bills, property etc...

Which is why we are able to run unimaginable deficits.

Note: this is a watered down version:mrgreen:

Whew and i thought my logbook was weird. :shock:
 
Sure!

Assuming a neutral currant account (exports = imports), the only way for the government to run a deficit is via foreign investment and internal investment. However this is not important, just the frame work.

Regardless of the state payments, Current account (CA) + Capital financial account (KFA) = zero; CA + KFA = 0.

The current account is the amount of money flowing into the economy (net exports, net income from abroad, and net unilateral transfers such as payments made abroad; and the capital account is the net flow of "unilateral transfers of assets into the country" such as when a foreigner buys a piece of property or Treasury Bills.

In our situation, we have a negative current account which is exactly (in regards to absolute value) equal to that of the positive capital account. Because we purchase more (with dollars) from abroad than we export, many of our trading partners are left holding dollars. What do they do with these dollars? They purchase dollar denominated assets such as stocks, t-bills, property etc...

Which is why we are able to run unimaginable deficits.

Note: this is a watered down version:mrgreen:

Somewhere along the line my brain didn't want to make a connection. You mean a trade deficit allows us to hold more debt? Debt makes debt? :confused:
 
Somewhere along the line my brain didn't want to make a connection. You mean a trade deficit allows us to hold more debt? Debt makes debt? :confused:

A trade deficit allows foreigners to purchase dollar denominated assets with the dollars they receive (because we are purchasing more than we are selling). The safest place to put money is in government guaranteed assets, such as US Treasury Certificates.

So yes, in essence the trade deficit allows for the government to borrow from foreigners in an efficient fashion.
 
A trade deficit allows foreigners to purchase dollar denominated assets with the dollars they receive (because we are purchasing more than we are selling). The safest place to put money is in government guaranteed assets, such as US Treasury Certificates.

So yes, in essence the trade deficit allows for the government to borrow from foreigners in an efficient fashion.

So if I give my neighbor a rake and my own Tony notes and he gives me a car, he thinks that it's a good idea to buy some stake in my accounts? What is my neighbors rationale here?
 
How many non-existant jobs were saved?...LOL!!!!

Did anyone honestly expect this to be anything other than the spending circus so many warned against in the first place?
 
So if I give my neighbor a rake and my own Tony notes and he gives me a car, he thinks that it's a good idea to buy some stake in my accounts? What is my neighbors rationale here?

This is a governmental thing, which should not be confused with how private industry operates.

If China trades (on value) with the US, and we demand more than we are going to export, we are going to pay them using dollars. Reason be, even if China did float their currency, we would have to devalue our dollars by purchasing renminbi. This is quite inefficient, so instead, we purchase using dollars. In the same token, China holds say $1,000,000,000 this year. What are they going to do? Well, they could exchange dollars for euro's, pounds, francs etc..., but in doing so they would simultaneously devalue the dollars they hold by selling them all while revaluing the currency they are attempting to purchase. Which is why it is not efficient.

To even further muddy the waters, Oil is only traded in dollars (although the Iranians are being bastards about gold and the euro), so naturally they will purchase oil using dollars (as will every other country). Therefore oil is a dollar denominated asset which further strengthens our reserve status.

But buying too much oil could put upward pressure on the dollar price (similar to the currency situation), therefore they are forced to purchase other dollar denominated assets. Treasuries are the safest bet, which is why the Chinese purchase so damn many of them.

Same goes with all of our trading partners.
 
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So basically, because the dollar is the currency most international trade is based around, the dollar to keeps its value despite a large debt.

Is this correct?

I would agree if this is your point. The reason the US has remained the top contender in the international economy is not solely based on what it produces, but because it has been the center hub for international trade.
 
So basically, because the dollar is the currency most international trade is based around, the dollar to keeps its value despite a large debt.

Is this correct?

I would agree if this is your point. The reason the US has remained the top contender in the international economy is not solely based on what it produces, but because it has been the center hub for international trade.

That would be correct.
 
So basically, because the dollar is the currency most international trade is based around, the dollar to keeps its value despite a large debt.

Is this correct?

I would agree if this is your point. The reason the US has remained the top contender in the international economy is not solely based on what it produces, but because it has been the center hub for international trade.

You're almost there.

The dollar has maintained its artificial value for two major reasons:

1) Oil transactions are done in dollars even when the US is entirely not involved in the actual deal. The buyer has to go buy dollars artificially boosting their prices to pay for the oil which then the seller usually invests somewhere else but does not convert. As oil deals outside of the US are in the trillions of dollars, the artificial boost to the dollar's value is immense.

2) With so many reserves consisting of dollars, central governments are afraid of a significant decline in dollar value as it would punch gaping holes in their balance sheets. Thus they enact policies either to keep the dollar up or their currencies lower. Again, nothing to do with transactions with the US. Some banks have wised up to this fact within the past decade and actually have gone about reallocation of their serves into a larger, more diverse basket.

Note: both of these are entirely artificial and in no way represent real economic transactions.
 
Ok, that makes sense. You basically took what I said and said it in a more clear and less general manner.

This may be getting off topic, but here's another question of mine:

The U.S. dollar seems to keep this arificial value because of its large use in international trade (oil as you said) and its large use in foriegn reserves as you also have said.

Could this be consistant with the ability of certain products to maintain arificially high prices because of a monopoly or oligoarchy in the market? To me this is somewhat consistant with other places in the economy with imperfect competition.
 
Could this be consistant with the ability of certain products to maintain arificially high prices because of a monopoly or oligoarchy in the market?

Yeah, for the most part. But remember that some products maintain artificial prices due to inertia. At this point with virtualization on Linux and Macs, you can do virtually everything you need to do to run a business that you would do on Windows. But do people switch? No. Inertia.

To me this is somewhat consistant with other places in the economy with imperfect competition.

Well, the problem with capitalist theory is we assume people are rational and informed. Imperfect competition will occur because people aren't rational nor informed.
 
Well, the problem with capitalist theory is we assume people are rational and informed. Imperfect competition will occur because people aren't rational nor informed.

I hate to break up this interventionist love-fest, but you don't need prefect competition for capitalism to succeed.
 
I hate to break up this interventionist love-fest, but you don't need prefect competition for capitalism to succeed.

I never argued otherwise. Imperfect competition is better then no competition. But you still need intervention to have imperfect competition. The idea we can have a no intervention free market that survives for more then a few seconds is asinine.
 
I double you with a properly functional and staffed SEC!

Bernie has computer access? :mrgreen:

I raise you.................... with the Fed:shock:
 
I hate to break up this interventionist love-fest, but you don't need prefect competition for capitalism to succeed.

Sorry, don't want to sound like a smart ass, but isn't this why imperfect competition would exist?
 
Sorry, don't want to sound like a smart ass, but isn't this why imperfect competition would exist?

Imperfect competition exists because we just don't know everything. No one can possibly know everything.

"These conditions of perfect competition are widely known: numerous buyers and sellers, so that no one of them is big enough to “affect price”; a homogeneous good; and perfect information. One problem with the strict requirement that an industry meets these conditions, or else be consigned to government operation, is that there is virtually no industry in a real-life economy that would remain in the private sector! Almost every industry would have to be nationalized, were the implicit program of Haveman followed. This is easy to see once we realize how truly restrictive are these conditions. The homogeneity requirement, by itself, would be enough to bar most goods and services in a modern, complex economy. Except for thumb tacks, rubber bands, paper clips, and several others of this kind, there are
hardly any commodities which do not differ, even slightly, in the eyes of most consumers. Perfect information bars even the farm staples from inclusion in the rubric of perfect competition. This can be seen in a healthy, functioning, Chicago mercantile exchange. If there were full information available to all and sundry, there could be no such commodities market.

Not “affecting price” also presents difficulties. No matter how small a part of the total market a single individual may be, he can always hold out for a price slightly higher than that commonly prevailing. Given a lack of perfect information, there will usually (but not always) be someone willing to purchase at the higher price.

. . .

Under these conditions, competition in the usual sense of opposition, contention, rivalry, etc., would be completely lacking. Where is the need to attract the customers of other firms to oneself if each so-called “competitor” can “sell as much of its product as it wishes at the ruling market price?” Why go out and compete if one is guaranteed all the customers one could possibly want? If “competition” is supposed to indicate rivalrous behavior, one would think that “perfect competition” would denote a sort of super-contentiousness. Instead, through dint of misleading definition, it means the very opposite: a highly passive existence, where firms do not have to go out and actively seek customers.

. . .

In contrast to the passive notion of perfect competition, which has held center stage in the economics profession for the last few decades, there is a new comprehension of competition, in the market process sense, that is now drawing increasing attention. Instead of concentrating on the maximization of ends, assuming given scarce means, as does the Robbinsian notion of perfect
competition, the market-process view makes the realistic assumption that the means, although scarce, are in no way given; rather, knowledge of them must actively be sought out. The allocation of scarce means among competing ends is a passive procedure when the means and the ends are known. All that need be done can be accomplished by a suitably programmed computer. But the active seeking out of the ends and the means in the first
place is a task that can be accomplished only by entrepreneurial talent: active, not passive. The entrepreneur, denied his crucial role in the perfectly competitive world view, takes center stage in the market-process conception.
Instead of merely economizing, the entrepreneur seeks new and hitherto unknown profit opportunities; not content to allocate given means to already selected ends, the businessman blazes new trails, continually on the lookout for new ends and different means." - Walter Block

So let's not say that we need perfect competition in order for capitalism to work.
 
Regarding the reporting issues, I know for a fact that the Recovery Act Board is a joke. Devaney just made some outlandish statements that were totally inaccurate and the WSJ is carrying the story about it. The man is completely out of touch. Many agencies were never made aware of the duplicate reporting requirements under the Recovery Act. The man is out of touch.

Devaney's job and the board he runs is little more than an ineffective bureaucracy and a waste of tax payer dollars. There was a reporting mechanism in place to track government grant dollars, and for all it's faults, it worked. Now recipients are having to duplicate reports that they are already doing in one system.

The man should be sacked and his board disbanded. There is no logical reason for their existence as a regulatory or monitoring agency. Those were already in place. Somebody created a bunch of high paying jobs for some reason.
 
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